To: Seeker of Truth who wrote (61099 ) 4/12/2010 11:33:49 AM From: elmatador Respond to of 217949 Japan has become Itau’s main overseas market on the asset management front, with Japanese retail investors accounting for 82 per cent of the $14bn of assets held by overseas investors. Japan’s growing yen for Brazil’s attractions By Lindsay Whipp in Tokyo Published: April 11 2010 12:52 | Last updated: April 11 2010 12:52 Back in 2008, Roberto Nishikawa, senior managing director at Itaú, one of Brazil’s biggest banks, told his staff he expected assets under management from Japanese retail investors in the bank’s funds to rise tenfold by the end of 2009 to $5bn (£3.3bn, €3.7bn). “They told me I was crazy,” Mr Nishikawa says, with a smile. But the group has already collected $11.5bn, giving it about half of all Japanese retail money invested in Brazilian real-denominated investment trusts. It is understandable why Itaú saw opportunity in Japan. Japanese investors’ passion for investing in Brazilian assets has grown rapidly since 2008, when brokerages started distributing Brazilian-real denominated funds to Japanese individuals. Prior to 2008 there were hardly any available. Brazil is a relatively new market for many Japanese investors, making investment funds a more popular route than direct investment. As of February, individuals held a record Y2,050bn (£14.2bn, €16.3bn, $21.9bn) in investment trusts denominated in Brazilian reals, according to the Japan Investment Trusts Association. Japan has become Itau’s main overseas market on the asset management front, with Japanese retail investors accounting for 82 per cent of the $14bn of assets held by overseas investors. A large part of Brazil’s attraction as a destination for Japanese investors is the interest rate differential. The meagre 0.1 per cent set by Japan’s central bank provides a sharp contrast to Brazil’s 8.75 per cent. Reflecting this, two-thirds of the assets invested in real-denominated investment trusts are in bonds. Many investors are also probably hoping to benefit from a stronger Brazilian real, which has gained 14 per cent against the Japanese yen over the past 12 months. However, they face having returns from their bond investments reduced or even wiped out if the real weakens significantly and the currency exposure is not hedged. Another attraction is Brazil’s status as an emerging economy with strong growth potential. Brazil’s national statistics office last month said the economy is on course to grow at least 5.5 per cent this year on the back of strong consumer demand and a recovery in investment. Purchasing power is also rising as more people move into the middle classes, Mr Nishikawa says. “The fundamentals in Brazil look quite good,” says Junya Tanase, a senior currency strategist at JPMorgan in Tokyo. “We expect Brazilian GDP to reach 6.2 per cent this year. This high level, coupled with high interest rates, is attracting the retail investor. It is easy to understand and there is the additional appeal of the World Cup and Olympics.” Brazil is hosting the Fifa World Cup in 2014 and the 2016 Olympics. The nation could benefit from the various infrastructure and investment that these major events bring in the same way as Japan did when Tokyo hosted the 1964 Olympics. The Japanese age group that can recall those days is now either retired or nearing retirement. This group has the highest level of savings and likes to buy investment trusts that provide monthly dividend income, though it is not clear the extent to which these older savers buy into emerging markets. Itaú has already capitalised on this story, having launched the first Olympic-themed equity fund, called Rio Winds, in Japan last November through one of its local partners. The fund, which raised $1.2bn within a month, invests in stocks expected to benefit from Olympic-related investment. Itaú is now trying to woo Japanese institutional investors. Last week, it launched an asset management arm in Tokyo, where it has employed four people to give investment advice and plans to market onshore funds with local partners and offshore funds independently. “With the time difference, if something happens in Brazil, we need to have people working in Japanese time so they have information when business opens [here],” Mr Nishikawa says. The bank is likely to need patience. Institutional investors such as pension funds have yet to put substantial chunks of their portfolios in emerging market funds. One local expert says institutional investors are interested in Brazil’s potential but this interest has not manifested as real investments to the same degree as has interest in China and India. The question for institutional investors and new retail investors interested in the Brazilian stock market is whether they are late to the party. Over the past year, expectations for strong growth have fueled a 62.5 per cent gain in the Bovespa index to within a whisker of its all-time high of 73,516.81 in May 2008, giving investors ample reason to think it may be ready for a breather. However, on the fixed income side, any rise in interest rates could lure more investors wanting to benefit from the higher yields.