TOKYO -- Trading in a popular exchange-traded fund linked to the Nikkei Stock Average is at a two-year low, underscoring the growing reluctance of retail investors to engage with a lackluster equities market.
Turnover on the Next Funds Nikkei 225 Leveraged Index ETF, which is twice as volatile as the average itself, has been falling for the past three months. Trading totaled 1.85 trillion yen ($18.2 billion) from the start of September through Thursday and could sink under 2 trillion yen for the first full month since September 2014.
This fund had become a popular choice for retail investors looking to exploit short-term price swings. But recently, that money "has moved into volatile gaming or bank stocks," said Tomoichiro Kubota of Matsui Securities. Nintendo was the highest-turnover listing for that brokerage Thursday. The leveraged ETF came in at No. 2.
The Tokyo market's declining volatility lies behind the lull in this leveraged ETF. The Nikkei average's highest and lowest values in September through Thursday are separated by just 676 points -- the slimmest gap since the 482 points of July 2014. This relative calm is representative of the market since August, when the Bank of Japan bulked up planned ETF purchases to an annual 6 trillion yen.
"The Nikkei leveraged ETF has become a tough sell to individuals looking to trade on price gaps," said Masayuki Doshida, senior market analyst at the Rakuten Securities Economic Research Institute. This contrasts with August 2015, for example, when uncertainty surrounding the Chinese economy sent global stocks sliding and the Nikkei average's high-low spread to 3,001 points. Turnover on the funds surged to around 4.7 trillion yen in that month.
Don't stick around
Retail investors also now aim to get into and out of the market more quickly. The turnover period for margin trades and loans averaged nine days as of Thursday, according to Japan Securities Finance. This was the shortest since March 2015. At Matsui Securities that day, more than 90% of trading in Nintendo came from day traders. The figure topped 80% at Mitsubishi UFJ Financial Group.
Shorter turnover reflects a growing awareness of the risks involved in holding on to stocks in a sluggish market. Contrast the current nine-day figure with a turnover period of around 17 days following June 24, when the global markets began to recover from slides induced when the British voted to leave the European Union.
Longer-term retail investors are growing more cautious as well. Individuals sold 161.5 billion yen more in Japanese stocks than they bought in the third week of September, excluding margin trades. This brought total net cash sales since August to 446.6 billion yen.
"Whenever the market falls, the Bank of Japan steps in, making it difficult for individuals to buy proactively," said Yutaka Miura of Mizuho Securities. The current lag could continue through late October, when earnings releases for the April-September half may provide a burst of energy.