TOKYO -- The Japanese stock market has been stuck in slow motion of late, apparently failing to garner much interest from overseas investors such as sovereign wealth funds of oil-producing countries.
The benchmark Nikkei Stock Average edged down 0.12% Wednesday, falling 24 points to 19,729.
Given current crude oil prices, oil-centric sovereign wealth funds "must feel hamstrung in making moves," said Chihiro Ota, head of investment research at SMBC Nikko Securities.
The U.S. oil price benchmark, West Texas Intermediate, is trading below $50 a barrel these days, a far cry from the $100 or so seen back in July 2014. Feeling the strain from lower oil revenue, sovereign funds have hit the sell button, and this in turn tends to put a ceiling on stock prices.
The exact financial health of these funds remains something of a mystery because many of them, particularly those in the Middle East, do not disclose the size of their assets or details of their portfolios. One fund praised for its transparency is Norway's Government Pension Fund Global, which boasts over $900 billion in assets under management, supported by crude oil income. The fund is managed by Norges Bank, the country's central bank.
The Norwegian fund had 8.9% of its equities portfolio allocated to Japanese stocks, according to data released in March. That represents a slight drop from 9.3% in December 2015. The fund slashed its stake in electronics maker Pioneer from 5.03% to 1.14% while also scaling back its holdings of Nissan Motor and Toyota Motor.
Similarly, the Saudi Arabian Monetary Authority, the Middle Eastern nation's central bank that also controls its investment fund, sold off its stakes in Nishimatsu Construction and Sony Financial Holdings.
These funds may have instead added real estate properties in Europe in an effort to boost returns, said Kenichiro Yoshida, senior economist at the Mizuho Research Institute. Generally speaking, sovereign wealth funds are said to invest for the long haul. So they tend to "shun Japanese large caps, many of which hardly appear undervalued and are susceptible to foreign exchange rates and other external factors," said an asset manager at a foreign-affiliated brokerage.
Meanwhile, some Japanese companies are getting attention. Take Fuji Oil. The oil importer was picked up by Norges Bank, which has been amassing shares since April and now owns a 5.03% interest.
Fuji Oil is an unremarkable performer. It expects net profit to tumble 70% this fiscal year. The stock touched its lowest level so far in 2017 last week. But the company handles part of the refinery business of industry giant Showa Shell Sekiyu, which is pursuing a merger with peer Idemitsu Kosan. "Even if industry realignment moves forward, Fuji Oil will remain as an important player," Daiwa Securities analyst Shusaku Nishikawa said.
Outside the oil patch, Norges Bank has also been buying autoparts maker Press Kogyo and Sato Holdings, a manufacturer of hand labelers and electronic printers, and now holds 5.04% and 5.01% of these firms, respectively. Both are small- to midcapitalization stocks that are relatively resistant to damage from external factors and have the prospect of delivering steady earnings.
With the crude price downturn that began in 2015, funds of oil-exporting countries have been rather quiet in the stock market here. But if Japanese equities can shine brighter than other assets in the world, these funds will have a substantial impact on the Tokyo market given their immense wealth.