Soon, investors and traders in Japan can bet on an Indian benchmark stock index through a local bourse. The National Stock Exchange (NSE) on Thursday said it would launch Nifty futures on the Osaka Securities Exchange, a Tokyo Stock Exchange arm, by March 2014. The contracts would be yen-denominated, helping Japanese investors bet on Indian stocks without currency risks.
“Yen-denominated S&P CNX Nifty Index futures contracts would help investors in Japan to effectively diversify their portfolios in their own currency,” Ravi Narain, managing director and chief executive of NSE, said in a release.
NSE is targeting hundreds of Japanese investors who have poured money into India through yen-carry trades. This trade involves borrowing funds in a low-interest rate currency and investing these in foreign assets with higher returns. In Japan, for many years, investors have availed of the near-zero interest rate by borrowing yens, converting these into dollars and investing these in higher-yielding assets, including foreign equities such as those in India. After squaring off the trade, they buy back the yen and repay the loan.
Such has been the popularity of yen-carry trades in global financial markets that Japan’s influential retail currency traders earned the nickname ‘Mrs Watanabe’, drawing upon a popular Japanese surname (wives control the finances in Japanese households).
Institutional brokers said in 2007, about 20 per cent of the foreign institutional money into Indian equities could have been triggered by carry trades in yen. But such trades were susceptible to currency risks, with many Japanese investors losing heavily in the stock market crash of January 2008. Brokers said though such trades revived in recent months, these pale before the extent of these investments from Japan in 2007, as dollar-carry trades have been in vogue due to the easy monetary policy followed by the US Federal Reserve.
The listing on Tokyo Stock Exchange would mark NSE’s third global venture. The Indian bourse already offers Nifty futures trading at the Chicago Mercantile Exchange and Nifty futures and options on the Singapore Exchange. The Singapore bourse launched Nifty futures in September 2000, a few months after NSE launched that product.