Tokyo Report: ETF Market Growing Rapidly in Japan

Tokyo, Sept. 16 (Jiji Press)--Investors in Japan are showing an
increasing interest in exchange-traded funds, especially those that track stock indexes overseas.

ETFs are investment vehicles traded on stock exchanges and hold
assets such as stocks and bonds. A total of 62 ETFs were listed on the Tokyo
Stock Exchange and the Osaka Securities Exchange as of the end of July, up
3.5-fold from the end of last year. The rise reflects intense competition
between the two exchanges to attract investors by upgrading their lineups of
listed ETFs.
ETFs are attractive to investors as commission fees are low. While
investors pay 0.5 pct to 2.5 pct of their total investment as annual
commission fees for conventional investment trusts, the rate is much lower
for ETFs in most cases because fewer intermediaries are involved in the
process from marketing to management.
ETFs that track overseas stock price indexes are especially popular
with investors wishing to internationally diversify investments even if they
cannot purchase individual stocks overseas.
The world's first ETF is said to be one that debuted on Canada's
Toronto Stock Exchange in March 1990. More than 1,000 ETFs are currently
listed on major exchanges around the world.
Japan's first ETF, linked to the Nikkei 300 stock index, was listed
on the TSE in April 1995. The market for ETFs, however, failed to grow
rapidly in Japan as both brokerage houses and banks put priority on selling
conventional investment trusts.
But ETFs are now attracting a lot of attention as key investment
vehicles in Japan because increasing international competition among stock
exchanges has prompted domestic bourses to successively list ETFs for the
sake of survival.
In addition, the government is promoting ETFs through deregulation
in a bid to accelerate a shift of funds from savings to investment.
Accordingly, not only ETFs tracking domestic stock price indexes
but also those linked to rare metals and other assets are now available to
investors in Japan.
The TSE listed 54 ETFs as of the end of July, including those
linked to gold prices and Brazil's stock price index, while the OSE offered
eight ETFs such as those tracking stock price indexes in Shanghai, South
Africa and Russia.
A legal revision slated for the end of this year is expected to
pave the way for creating ETFs for investment in commodities like crude oil
and grain against a backdrop of soaring prices.
The substantial growth of the ETF market can also be attributed to
online brokerage houses providing overseas ETFs to domestic investors fed up
with the persistent weakness of Japanese stocks.
But Susumu Okano, director of capital market research at the Daiwa
Institute of Research, warns that although the number of ETFs available to
investors in Japan has increased, ETFs for effective international
diversification of investments are very few.
Furthermore, because ETFs require higher antes than conventional
investment trusts and involve foreign exchange risks, Okano stresses the
need for investors to be "well aware of their mechanisms and features"
before investing.