Fears leveraged ETFs could amplify Japan equity swings

Leveraged ETFs are amplifying index movements in Japan after huge investor inflows led to record AUM. Tactical investors are taking advantage of the market dislocations but a dearth of liquidity across markets means such events may become more frequent, dealers say

Concerns are mounting that large moves in Japanese equities are being driven by exchange-traded fund (ETF) providers seeking to match the daily close of their leveraged products to that of the underlying shares.

Huge investor inflows in the past two years have led to record assets under management (AUM) for the products, with Japan's 'Abenomics'-inspired recovery spurring investment into equities and equity-linked investments. Assets under management in ETFs have grown 15-fold from $650 million