Elderly make up 40% of retail investors in Japan Inc.

THE NIKKEI via scoutAsia

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December 6, 2022 3 min read
Elderly make up 40% of retail investors in Japan Inc.

Shareholders of Japanese companies are graying quickly, with individuals 70 and older now accounting for more than 40% of retail investors in domestic stocks, up from 15% three decades ago.

The aging of investors in Japanese shares is much faster than that of the population as a whole, as younger people shun Japanese equities in favor of overseas investments.

Stock investment boomed among working-age people during the bubble economy of the late 1980s. When Nippon Telegraph and Telephone listed on the stock market in 1987, the telecommunications giant quickly gained nearly 700,000 new shareholders, many of them in their 30s and 40s.

Thirty-five years later, people 60 and older make up more than 80% of NTT‘s shareholders, according to one estimate. “Some of our new shareholders are selling the stocks they inherited,” said Takuro Hanaki, head of NTT‘s investor relations. “We have to think seriously about how to retain investors 10 to 20 years from now.” The company is already taking steps to attract younger investors, including adding visual presentations to highlight its dividend history, and offering online briefings.

Over the last 30 years, the largest group of retail shareholders in Japanese equities by value shifted from people in their 50s in 1989 to those in their 60s in 1999 and to people aged 70 and older in 2019. Nikkei’s analysis is based on data from the Internal Affairs and Communications Ministry’s national survey of family income, consumption and wealth, and the Bank of Japan‘s flow of funds statistics.

The key factor behind the shift is demographic. The share of people aged 70 or older in the overall population rose from 10% in 1989 to 26% in 2019. But the aging of shareholders in Japanese stocks has been even faster, with the ratio of investors in their 70s and older rising from 15% to 41%. This is mostly because younger people are avoiding Japanese stocks and putting their money elsewhere. As foreign and institutional investors bought shares sold by elderly shareholders, the overall ratio of retail investors in Japanese stocks has fallen.

After stock trading over the internet picked up steam in 1998, a clear trend emerged, with younger investors buying shares online and older ones using conventional brokerages. But this trend was short-lived. At Matsui Securities, an online trading pioneer, investors aged 70 and older now comprise the largest age group of stock traders, accounting for 35% of total transaction value.

With the Nikkei Stock Average on an uptrend since hitting bottom in 2009, many young investors have been spared the trauma of major losses. While they are generally favorable toward investing, they tend to be drawn to U.S. stocks and other overseas financial products. The number of brokerages handling overseas equities has increased and low-cost investment trusts have proliferated. Information about overseas markets is also easier to obtain.

In fact, online brokerage Monex said U.S. stocks accounted for 58% of stock trading among 30-something clients in October on a settlement basis, topping the figure for Japanese shares. Investment in U.S. stocks also accounted for more than 40% of investments by customers in their 20s and 40s, according to the company.

Japanese businesses are in a serious battle to win over individual investors. Investment trusts in Japan have bought nearly 10 trillion yen ($72 billion) more of overseas stocks than they have sold since 2012. Over the same period, they were net sellers of Japanese equities.

In terms of corporate performance, Japanese companies are less attractive to investors. Sales for the companies that comprise the Nikkei 225 have risen 30% over the past decade, while major 500 U.S. companies saw sales growth of 50% over the same period. U.S. businesses also have strong growth and earnings potential.

Investing in U.S. shares is also easier, thanks to their lower minimum investment thresholds. For example, an investor must spend a minimum of 8 million yen to become a shareholder in Fast Retailing but needs only 20,000 yen to buy an Apple share. Japanese companies have only themselves to blame: They have been reluctant to lower minimum investment amounts due to concerns that a greater number of shareholders will raise administrative costs.
Japan‘s tax system is also not investor-friendly.

While listed stocks are valued at the market price upon inheritance, residential property receives much more favorable treatment. As a result, many seniors do not leave shares to their heirs, instead selling stocks to buy real estate.

In an effort to attract investors in their 40s and younger to domestic stocks, Prime Minister Fumio Kishida announced plans to make a tax-exempt stock investment program, NISA, permanent under his “income-doubling drive.” If the government wants to stem the outflow of capital from Japan and increase domestic investment, it may have to do more.

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The English translations provided through this service are the result of automatic and mechanical translation of contents written in Japanese and created by Nikkei or licensed by a third party, by an automatic translation system provided by a third party after certain processing of the contents by Nikkei. Nikkei disclaims all warranties, express or implied, related to the English translations, including any warranty of accuracy, reliability, validity and fitness for a particular purpose. Users shall use this service with the full understanding that it employs an automatic translation system that automatically and mechanically recognizes and analyzes information and outputs the results.

The English translations provided through this service are the result of automatic and mechanical translation of contents written in Japanese and created by Nikkei or licensed by a third party, by an automatic translation system provided by a third party after certain processing of the contents by Nikkei. Nikkei disclaims all warranties, express or implied, related to the English translations, including any warranty of accuracy, reliability, validity and fitness for a particular purpose. Users shall use this service with the full understanding that it employs an automatic translation system that automatically and mechanically recognizes and analyzes information and outputs the results.