Even as the aftershocks from the earthquake pushed financial markets sharply lower last week, American investors poured $1.2 billion into Japanese equity exchange-traded funds, or E.T.F.’s., according to new data. It was the biggest weekly inflow on record, a trend suggesting that some investors are already betting that the crisis may be just an interruption to a market rally.
On March 16 alone, five days after the earthquake and tsunami and as the nation’s nuclear crisis was worsening, investors put $700 million into Japanese E.T.F.’s, according to the data from TrimTabs, an investment research organization. That was twice the previous largest daily inflow on record, in 2003.
The latest market trends show that investors are cautiously stepping back into stocks. Markets in the United States rose this week as worries about the situation at the Fukushima nuclear plant subsided somewhat. The Standard & Poor’s 500-stock index has rallied back to just 0.8 percent below the highest point on March 11.
Market strategists are also looking beyond Japan’s crisis, calculating that it may have only a limited impact on the United States and the rest of the world, provided that the nuclear crisis does not significantly worsen.
“Through the volatility, the story stays the same,” economists at Morgan Stanley concluded in a research report published Wednesday. In the report, the economists estimated that although the earthquake and its aftermath might push Japan back into recession this year, it would shave a fraction of a percentage point off global growth this year.
“Though not trivial, this shouldn’t derail the relatively robust global recovery,” the report concluded.
The latest data from TrimTabs is based on inflows into seven Japanese equity E.T.F.’s, which are similar to mutual funds but trade like a stock on public exchanges. The biggest of these funds is offered by BlackRock’s iShares unit and is listed on the New York Stock Exchange.
Investments began to flow into Japanese E.T.F.’s in December, and there had been three consecutive months of inflows before the earthquake. E.T.F.’s have become popular trading vehicles among short-term traders, and the inflows have had more to do with speculative positioning rather than a vote of confidence in a rebound in the Japanese economy.
After the earthquake, investors waited for two trading days before acting. But on Wednesday, March 16, after stocks in Tokyo fell by about 10 percent, investors in the United States responded by moving heavily into E.T.F.’s.
One reason may be that Japanese stocks still have far to go in their recovery. Though the Nikkei 225 index in Tokyo has bounced back from recent lows, it is still down 9.43 percent since before the earthquake.
Minyi Chen, Asia equity analyst at TrimTabs, said that the latest purchases were driven by retail investors spotting a long-term buying opportunity, rather than by short-term traders.
“Buyers began to emerge almost immediately.” he said. “Extremely low valuations brought in bargain shoppers.”
Typically, institutional investors like pension funds, hedge funds and short-term traders make up about only 10 percent of the holders of the Japanese E.T.F.’s, he said. The inflows have continued this week — with another $371 million flowing in on Monday and Tuesday, he said.
While retail investors may have been pouring into Japanese stocks through E.T.F.’s, hedge funds were selling United States stocks as the crisis unfolded.
According to research by Bank of America Merrill Lynch, hedge funds built up their short positions in futures on the S.& P. 500, meaning they were taking bigger bets that the stock market would be dragged down by the crisis in Japan. They also took short positions on Nasdaq 100 futures and on futures of small cap companies in the Russell 2000 index.
Eric Fine, who manages Van Eck G-175 Strategies and helps advise Van Eck Global, which has $3 billion in emerging market assets, cautioned that markets were still not out of trouble.
He said there was still a risk to the global economy if the yen strengthened more, and if any further dollar weakness caused a crisis of confidence in the currency. A worsening situation in Libya could also put more upward pressure on the oil price.
“We are in a 65-35 percent world,” Mr. Fine said. “There is a 65 percent probability of markets slowly grinding upward, and a 35 percent chance of a more severe recognition of these risks.”
At least one longer-term investor said that he had taken advantage of the market drop. David Marcus, a former hedge fund manager who now oversees Evermore Global Advisors, a mutual fund in New Jersey with $70 million under management, said that he had begun to buy positions in companies like Siemens in Europe and in some United States bank stocks as the Japanese crisis pushed stock markets down worldwide last week.
Mr. Marcus said that his fund had not yet invested in Japanese stocks, but he was now looking more closely at Japanese companies, including in the infrastructure sector, which may benefit from the rebuilding after the earthquake and tsunami.
He said he was considering broader investments in Japan but that this step would depend on whether the crisis became a catalyst for broader political and economic reform in the country. “This could kick-start the political process, but we are not there yet,” he said.
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