Bearish bets on Japanese stocks have surged to a record level because foreign investors are increasingly skeptical that Prime Minister Shinzo Abe will succeed in reviving the economy, according to financial services company Reorient Group Ltd.

Short-selling of shares on the Tokyo Stock Exchange accounted for 37.8 percent of trading value Tuesday, the highest ratio since the bourse began keeping daily records in 2008.

Investors pulled $245 million out of the biggest U.S.-listed exchange-traded fund tracking Japanese shares on Monday, the second-largest outflow since May 2013, data compiled by Bloomberg show.

After the Topix soared 51 percent in 2013 as Abe embarked on monetary easing and fiscal stimulus to lift Japan out of deflation, the rally slowed to an 8.1 percent advance last year and foreigners barely added to investments as they waited for the prime minister’s structural reforms, known as the third arrow.

Blackstone’s Byron Wien, who accurately predicted gains for Japanese equities in 2014, says shares will stagnate this year as the recession drags on.

“Foreign investors are increasingly bearish on Japan and don’t believe in the third arrow,” said David Welch, head of equity sales trading at Reorient Group in Hong Kong. “The easy part has been done, i.e. fiscal and monetary easing. The third arrow is the hard part and overseas fund managers don’t believe it will happen.”

Short-selling in Tokyo rose to as much as 36.7 percent of trading by value on Oct. 30, a day before the Bank of Japan unexpectedly announced an increase in record monetary easing and the ¥131 trillion Government Pension Investment Fund said it would favor more local shares and foreign assets over domestic bonds. The Topix gained as much as 13 percent from then through Dec. 8, when it closed at a seven-year high. It has dropped 6.1 percent since.

The Monday outflow from the iShares MSCI Japan ETF came after investors yanked $807 million out of the $13.9 billion fund in December, the most for a month since August 2013, data compiled by Bloomberg show.

“Shock and awe” won’t work in Japan in 2015, Wien, vice chairman of Blackstone’s advisory services unit, wrote this week in his “surprises” list, which he has published since 1986.

The 81-year-old former Morgan Stanley senior strategist was right in his call for the Nikkei 225 stock average to climb to 18,000 in 2014, with the index peaking at 17,935.64 in December.

The measure will end this year flat in yen terms and hand U.S. dollar-based investors losses, Wien wrote this week.

With the short-selling ratio at a peak again, Japanese shares are likely to stop falling in the short term as investors look to close out the positions they’ve accumulated, according to Reorient’s Welch and Andrew Clarke, director of trading at Mirabaud Securities Asia Ltd.

“When short-selling dies down, the market will naturally move higher on no news,” Clarke said. “And if there is any good news globally, or a reaction from the BOJ to push the market, there will be a mad scramble to short cover along with those buying long. I wouldn’t like to be short at these levels.”

The Topix fell 0.1 percent at the close Wednesday after fluctuating between gains of as much as 0.5 percent and declines of 0.6 percent. Hedge funds are likely to remain bearish on Japan this year while they place bullish bets on other markets such as China, Welch said.

“Typically when you see such a massive spike in short selling like Tuesday, the market will stabilize in the near term as some of the shorts will look to cover,” Welch said. “But personally I think Japan will be a funding short for hedge funds all year. Japan has no real catalyst right now. Globally, there are better stories out there.”

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