Most Japanese equity funds* saw their double-digit gains for 2024 turn into year-to-date losses after Monday’s historic slump in Japanese stocks, according to data compiled by FSA.
When the Nikkei 225, a widely used gauge of the Japanese stock market, plunged 12.4% on Monday, it marked the biggest percentage fall since Black Monday in 1987.
The Nikkei 225 was up 10% year-to-date prior to the sell-off, but it has since stumbled into negative territory.
The chaos in Japanese equity markets seems to have been triggered by the Bank of Japan’s (BoJ) interest rate hike and a signal they would keep hiking in line with economic data.
The Japanese yen subsequently surged, leading to some forced liquidation among retail investors and an unwinding of a crowded short yen carry trade among institutions.
This has been exacerbated by rapidly changing expectations for US Federal Reserve rate cuts after a disappointing jobs report last week.
As a result of this sell-off, most Japanese equity funds have seen their entire 2024 gains wiped out in the span of just a few days.
Below, is a list of the 30 Japanese equity funds which have seen the biggest declines since the sell-off began on 1 August.
| Fund | Performance during sell-off (%) | YTD performance prior to sell-off (%) | YTD performance (%) |
| iShares MSCI Japan USD Hedged UCITS ETF | -21.79 | 22.74 | -4 |
| Alma Eikoh Japan Large Cap Equity | -21.72 | 23.97 | -2.95 |
| Nikko AM Japan Value | -21.11 | 21.94 | -3.8 |
| UBS (Lux) Equity Japan Sustainable (JPY) | -16.55 | 9.19 | -8.88 |
| Redwheel Nissay Japan Focus | -16.4 | -4.43 | -20.1 |
| iShares MSCI Japan UCITS ETF | -16.21 | 12.38 | -5.84 |
| CSIF (Lux) Equity Japan | -16.17 | 12.27 | -5.88 |
| iShares VII plc MSCI Japan UCITS ETF | -16.16 | 12.37 | -5.79 |
| Swisscanto (LU) Equity Small & Mid Cap Japan | -16.07 | 8.01 | -9.35 |
| iShares JPX-Nikkei 400 ETF | -16.05 | 13.47 | -4.75 |
| Janus Henderson Horizon Japan Opportunities | -16.03 | 16.5 | -2.17 |
| Pictet Japan Index | -15.95 | 12.43 | -5.5 |
| Nomura TOPIX Exchange Traded | -15.9 | 9.78 | -7.67 |
| JPMorgan Japan Research Enhanced Index Equity (ESG) UCITS ETF | -15.8 | 12.55 | -5.23 |
| AB Japan Strategic Value Portfolio | -15.79 | 8.47 | -8.65 |
| CSIF (Lux) Equity Japan ESG Blue | -15.78 | 13.23 | -4.64 |
| Amundi Japan Equity Value | -15.7 | 8.61 | -8.44 |
| MUFG Japan Equity Small Cap | -15.69 | 5.29 | -11.23 |
| SMDAM Japan Equity Small Cap Absolute Value | -15.61 | 9.01 | -8.01 |
| Schroder ISF Japanese Opportunities | -15.59 | 11.18 | -6.15 |
| GS Japan Equity Partners Portfolio | -15.46 | 18.19 | -0.09 |
| Amundi Japan Equity Engagement | -15.41 | 10.51 | -6.52 |
| Manulife Japan Equity | -15.35 | 17.15 | -0.84 |
| MUFG Japan Equity Focus Growth | -15.18 | 7.86 | -8.51 |
| iShares Nikkei 225 UCITS ETF | -15.11 | 10.01 | -6.61 |
| Nomura Nikkei 225 Exchange Traded | -15.1 | 8.76 | -7.66 |
| iShares Core Nikkei 225 ETF | -15.09 | 10.42 | -6.24 |
| Mitsubishi MUFG Japan All-Cap Positive Leaders | -14.99 | 8.26 | -7.97 |
| Schroder ISF Japanese Equity | -14.94 | 4.82 | -10.84 |
| Allianz Japan Equity | -14.66 | 11.38 | -4.95 |
Looking ahead, some investors expect the BoJ to continue with hiking despite the recent bout of volatility.
“Once market volatility subsides, it would make sense to expect a gradual tightening in policy by the BoJ,” said Idanna Appio, portfolio manager at First Eagle Investments.
“Regarding the yen, we still see the currency as undervalued and expect it to appreciate over the medium term.”
Investors need not panic about Japan because its equity market has a history of overshooting during periods of aggressive selling, according to Ray Sharma-Ong, head of multi-asset investment solutions, Southeast Asia, at abrdn.
He pointed to a similar correction in May of 2013, which saw the Japanese equity market decline 18% peak-to-trough over a short period, before recovering to previous levels within two weeks of bottoming out and breaching new highs four months later.
“Fundamentally, nothing significant has changed for the Japanese economy. It is the unwinding of the carry trade driving a lot of the momentum sells,” he said.
*As measured in US dollars. The funds only include products that fall under the relevant Hong Kong SFC Authorised Mutual or Singapore Mutual sectors as classified by FE fundinfo with a full year-to-date track record.
