Bystander’s View on Japan #6, July 9, 2012

I am currently in KL, Malaysia on business trip. One thing I was impressed by was the improved passport control at the KL International Airport. You do not have to fill the immigration from. Entry to Malaysia is completely paper free. The lines at the passport control were much shorter than before. Good Job Malaysia!

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TOPICS OF THE WEEK

Japanese investors start to know the distribution they get from mutual funds are largely from principal not from performance of the investment.

Japanese individuals have invested more than Yen 30 trillion (about RM 1.1 trillion) into High-Yield-Monthly-Dividend type mutual funds facing very very very low interest rate in Japan. Many of those funds, however, have been distributing more than the actual fund performance to attract retail investors who do not know the gimmick of the HIGH PERFORMANCE they get.

FSA Japan has started giving guidance to Asset Management companies and Brokers to disclose how much distribution are made from actual performance and how much are from principal. The results are alarming. Some funds ,which have provided high dividend by reducing principal, are facing NAV reduction because investors are selling such funds. 

Here are some exampes of funds which have high distribution from principal.

Name of the fund                NAV(Yen Bn)   Distribution from Principle     

Global Sovereign Open      1589                80%                                       

Daiwa US REIT                   576                 50%                                       

Global High Yield                 653                 50%                                       

MARKETS

                     July 6        %Change

    NIKKEI      9020.75  +0.15

    TOPIX         771.83   +0.22

This week will be another directionless week. A week of Waiting for some better news on European crisis and U.S. economy, and Expecting a lot to the BOJ policy meeting middle of the week. Hard to tell what will happen, but it may be OK to say the Nikkei will be around 9000 yen.

ECONOMY

Generally speaking, sentiment is better on Japanese economy, thanks to better economic statistics comparing to Europe and the U.S.

Although China slowdown may be the risk factor, Japanese economic performance must be better than other developed economies.

POLITICS

Now, the ruling DPJ was split because a group led by Mr. Ozawa said SAYONARA to PM Noda. Political situation becomes much more fluid. Japan does not have time to waste in playing musical chairs. Only solution will be a general election to decide undecided issues. ]

See you next week!