The US Fed decision to taper the third cycle of quantitative easing (QE3) has led to a strong capital outflow from the emerging markets (EMs). While the announcement spooked markets across the world, equities and currencies from EMs faced a sharp capital exodus.
The developed markets (DMs) had been preferred investment destinations in last two years given a recovery in the economic activities in countries across Europe, besides US and Japan. However, the recent bout of selloffs seems to have given Japanese stocks a beating with the benchmark Nikkei tanking over 13% this year so far while European and US markets lost between 4% and 7%.
Bloomberg data show the Japanese equity market witnessed a net outflow of nearly $9.6 billion in January, almost double the amount of equities sold by FIIs in other Asian markets, including India, Indonesia, South Korea, Thailand, the Philippines and Taiwan, in the year so far. In 2013, Japan mopped up a whopping $145 billion of FII funds, almost five times the net FII purchases from these markets.
The key reason for the plunge in the Japanese market seem to be the appreciation of nearly 4% in the Japanese yen against the dollar this year. In turn, this trimmed the earnings prospects of the export-oriented Japanese companies. After losing 13% and 22% of its value in the previous two years, the yen has gained against the greenback for the first time since 2011.
