The Bank of Japan Was The Top Buyer Of Japanese Stocks In 2016
By Tyler Durden
When it comes to propping up the stock market in the US, the Federal Reserve does so with a certain degree of nuance, keeping at least one layer of disintermediation between itself and the market, which usually involves “advising” Citadel to intervene when it comes to acute moments of market stress, granting the HFT-heavy hedge fund a green light to stop and reverse and violent selloffs, or more traditionally, allowing companies to repurchase their own stock thanks to (until recently) record low interest rates.
This is nothing new: as Goldman has repeatedly pointed out, in 2016 corporations have been the largest source of equity demand, purchasing $450 billion of US equity through buybacks and cash M&A (net of share issuance). Outside of the Great Recession, corporates have been the primary source of US equity demand (see Exhibit 1).
Furthermore, Goldman recently predicted that as a result of Trump’s proposed repatriation tax holiday, buybacks in 2017 will surge even more, to wit:
Buybacks ($780 billion, +30%) will rise sharply in 2017. Our economists expect tax reform legislation will pass during 2H 2017. President-elect Trump and House Republicans have expressed support for a one-time tax on previously untaxed foreign profits as part of their tax reform proposals. We forecast that S&P 500 firms will repatriate $200 billion of their total $1 trillion of cash held overseas in 2017 and spend $150 billion of the repatriated funds on share repurchases. Managements generally remain committed to buybacks, which will benefit from 2% US GDP growth and ex-Energy earnings growth of 6%.
None of that should be news to regular readers, however it is worth repeating that the primary source of demand for US equities are the stock-issuing corporations themselves, who – in a page right out of Baron Munchausen – continue to pull themselves up by their bootstraps with the blessings of the Federal Reserve’s cheap money. That may soon be changing, however, now that rates have spiked higher and announced buyback have tumbled 28% Y/Y according to FactSet.
Meanwhile, in Japan, the BOJ had taken a less “stealthy” approach, and as has been the case for years, the Japanese central bank under Kuroda has had far fewer qualms about intervening directly in the equity markets by purchasing either ETFs, REITs or single name securities.
Did we say “less stealthy?” We meant the central bank is now intervening directly in the stock market with all the finesse of a stock bull in a china store (just not Chinese china, it’s a patriotic thing), and according to a report by the Nikkei, the Bank of Japan is set to become the biggest buyer of ETFs in 2016 for the second straight year, in the process masking a srecent surge in foreign investor selling.
According to data through Thursday, the value of the BOJ’s ETF purchases this year has topped 4.3 trillion yen ($36.5 billion), up 40% from 2015. Last year, the central bank bought more than 3 trillion yen worth of ETFs. The data …read more
Source: The Bank of Japan Was The Top Buyer Of Japanese Stocks In 2016
