Japan Prime Minister Shinzo Abe ordered an earlier review of the biggest pension fund’s portfolio, Health Minister Norihisa Tamura said today, amid speculation the fund is already buying more stocks.
Tamura will ask the 128.6 trillion yen ($1.3 trillion) Government Pension Investment Fund to work on an overhaul of its investments, he said in Tokyo. Abe urged the changes to be announced in September or October, according to a Nikkei newspaper report today.
“We need to start the review as soon as we can,” Tamura said. “The economic environment is changing. The investing environment is obviously changing too. If we review the core portfolio to adapt to that, then we can reduce risk.”
Investors are watching for Japan’s cautious retirement-savings managers, led by GPIF, to shift into shares as the Bank of Japan spurs inflation that risks eroding the value of bonds. The Topix index of equities slipped 5.2 percent this year, adding pressure on Abe to prove his policies can spur a sustained economic recovery. Trust banks, which often buy and sell on behalf of pension investors, are putting the most money into local stocks in five years as foreigners sell, fueling speculation that GPIF is already buying.
“The push to move the changes forward is good for the market,” said Masaru Hamasaki, a Tokyo-based senior strategist at Sumitomo Mitsui Asset Management Co. “Revamping the allocations three months after the pension review came out will be quite a tight schedule, but if the prime minister has asked for this I think they’ll do it by then.”
Economy Minister Akira Amari said today that the government will include reform of GPIF in its economic growth strategies, due to be released this month, and it will seek stronger governance at the fund. The level of detail about GPIF that will be covered in the plans is still being decided, he said.
The fund could change its strategy in August and putting 20 percent of its assets into local stocks wouldn’t be too much, Yasuhiro Yonezawa, who heads its investment committee, told the Nikkei this week. That compares with a current target of 12 percent.
Trust banks made 250 billion yen in net purchases of Japanese equities last week, according to data from the Tokyo bourse published yesterday. That was the most since the period ended March 27, 2009. The banks have added money to the stock market for five straight weeks as the Topix index climbed and foreigners reduced holdings by 83 billion yen during the period.
“Given that it’s the biggest net purchase since stock prices plummeted during the financial crisis, you’d have to speculate that GPIF or corporate pensions were doing the buying,” said Shoji Hirakawa, chief equity strategist at Okasan Securities Co. in Tokyo. “It’s likely GPIF is doing what it can to prepare for allocation changes. The market was expecting them to buy next fiscal year, but it looks like they’re already doing it.”
Sumitomo Mitsui Trust Bank Ltd., Mitsubishi UFJ Trust & Banking Corp. and Mizuho Trust & Banking Co. manage Japanese stock investments for GPIF, according to the fund’s website. GPIF spokesman Tomoyuki Hirao declined to comment yesterday on the fund’s investing.
Trust banks have bought a net 574 billion yen of Japanese shares this year, while foreign investors sold 1.4 trillion yen, the TSE data shows. That contrasts with 2013, when Topix’s 51 percent surge was accompanied by record foreign buying and the banks dumped 4 trillion yen of shares.
The Topix slumped as much as 13 percent this year through an April 14 low as the yen strengthened and investor optimism about Abe’s revival strategies waned. The equity gauge has rebounded about 9 percent from that low and climbed 0.2 percent today. It remains the worst performer among developed markets.
Japanese stock rallies are often characterized by foreigners buying shares from local investors. During the five years in which the Topix rose more than 10 percent since the TSE began compiling the investor data in 2001, foreigners bought an average 8.8 trillion yen of shares each year, according to Bloomberg calculations based on the bourse data. Trust banks sold an average 3.4 trillion yen of equities in the same periods while local individuals offloaded 4 trillion yen, the data show.
“Trust banks are essentially pension funds whose aversion to their own stock market is the stuff of legend,” Jonathan Allum, an equity strategist at SMBC Nikko Capital Markets Ltd. in London, wrote in a May 29 note. “Discussions of how this might change inevitably focus on the largest of them – the GPIF – and attempts by the Abe administration and its allies to push the fund and its pathologically conservative management, into a less risk-averse posture. Hopes are high that change is about to come.”
Japanese investors also boosted purchases of foreign shares to a five-year high last week, separate data from the finance ministry shows. They added 277.1 billion yen in overseas stocks, according to the data, which doesn’t specify whether the buyers were trust banks or other investors.
GPIF and other public pension funds could shift an additional 12.4 trillion yen into foreign bonds and 7.5 trillion yen into overseas stocks as they revamp their strategies to seek higher returns, according to Nomura Holdings Inc.’s upside scenario. Nomura predicts a selloff of local bonds by GPIF will depreciate the nation’s currency by about 10 yen against the dollar over the next 12-18 months.
“It looks like there are many pension funds moving towards increasing stock holdings, following the trend set by GPIF,” Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co., said yesterday. “For other retirement funds GPIF is a benchmark presence, so they are anticipating its expected allocation changes.”