Aya Kawamoto, Managing Director and Head of MTNs and Private Placements, Europe Middle East & Africa shares her views on Japan's retail investors, known by the moniker of Mrs Watanabe, and how her risk appetite has differed from mid-market and institutional investors.
Known for her predisposition to currency trading, Mrs Watanabe represents the true retail investor of Japan. Historically, Mrs Watanabe has kept stocks at arm’s length and made a healthy contribution to Japan’s rather peculiar state of having more than 50% of assets in cash, unlike any other developed country. Although some may assume Mrs Watanabe would usually have a low risk appetite, she has a habit for taking the foreign exchange risk of developing countries’ currencies, including the Turkish Lira, Brazilian Real and South African Rand. These high yield currencies have delivered better returns to Mrs Watanabe during the lost score (the lost decade of 1991 – 2000 plus the following decade) than some investment strategies in Western economies. In the event that emerging market economies fail, Mrs Watanabe could find herself in a risky position but to date, it has provided her with a long, steady stream of credit.
Some mid-market investors take a similar view to Mrs Watanabe on developing economies in seeking out currency risk in a similar manner, as well as invest in Middle Eastern credits, an option not widely favoured in Europe. Those investors who prefer to invest in yen have bought such ‘exotic’ credits as part of their strategy and complemented this with structured notes overlaying FX and derivatives.
Institutional investors have traditionally been more conservative than Mrs Watanabe, often the slowest to move. Out of necessity, some have been exploring new credit options amidst dismal returns and, despite the fact they have long avoided taking geopolitical risk, these investors have also started to invest in developing markets.
As we can see, the three different types of investors in Japan have varying styles but have continued to deal with the same challenge for well over 20 years now, and European investors struggling in a negative yield environment should have plenty to take away from the Japanese experience.
Contact Aya Kawamoto here
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