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Forex Flash: Shift from AUD into EM currencies continues - Nomura

FXstreet.com (Barcelona) - Nomura strategist Yujiro Goto notes that the shift from AUD into EM currencies continues.

He begins by noting that retail investment in currency selection-type toshins recorded a net purchase for the twelfth consecutive month in February, according to Lipper-Japan. The amount of net purchases decelerated to JPY229bn (USD2.4bn) from JPY343bn in January and the slight deceleration was in line with February MOF capital flow data.

He adds that BRL was the most popular currency of choice for currency selection-type toshins for the first time since August 2011. BRL attracted JPY87bn (USD0.9bn), maintaining the high level since January (JPY122bn). Investment in TRY accelerated to JPY66bn (USD0.7bn), the biggest net monthly purchases. Investment in MXN also remained strong at JPY27bn (USD0.3bn) of net purchases. By contrast, he notes that retail investors sold AUD via currency selection-type toshins for the fourth month in a row, though the selling slowed from the previous month. He feels that Lower yields in Australia encouraged Japanese investors to shift from AUD into EM currencies.

Goto continues, writing, “Outstanding currency selection-type toshins increased to JPY10827bn (USD114bn) in February from JPY10671bn the previous month (Figure 2). The outstanding reached a historical high. Exposure to AUD declined to JPY1390bn (USD14.6bn) from JPY1484bn (USD15.6bn) and its share declined to 12.8% from 13.9%, the lowest since November 2011. By contrast, the share of BRL, TRY, and MXN rose respectively.”

While toshin flow slowed in February based on the MOF and Lipper-Japan data, he highlights that Nomura’s Individual Investor Survey suggests that retail investors’ risk appetite improved further in March. Additionally, the Nomura I-View Index, which tracks retail investors‟ expectations for Japanese equity performance, improved to 71.8 from 63.4, the highest level since April 2006. The index has been correlated with retail investment in foreign assets via toshins as well. Based on the survey, preference for domestic assets has been improving, suggested by the fact that JPY was the most popular of the major currencies. Thus, improving risk appetite is leading to an increase in domestic risky asset purchases. he finishes by writing, “However, we expect Japanese retail investors to increase investment in foreign assets gradually to capture the higher yields of EM currencies.”

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