Photographer: Tomohiro Ohsumi/Bloomberg

World's Biggest Pension Fund May Buy $47 Billion in Japan Stocks After Rout

  • Selloff in Tokyo shares means fund is short of target: Daiwa
  • GPIF also has room to cut domestic bonds, Merrill Lynch Says

The world’s biggest retirement fund has scope to buy $47 billion in Japanese shares after they tumbled this year, according to Daiwa Securities Group Inc.

The 139.8 trillion yen ($1.2 trillion) Government Pension Investment Fund’s domestic equities probably fell to about 21 percent of assets at the end of February, short of the 25 percent goal for such investments, the brokerage wrote in a report published Tuesday. That means the Japanese fund could purchase as much as 5.3 trillion yen in shares, it said. GPIF may cut domestic bonds by 11.2 billion yen as holdings probably exceed their target, according to Bank of America Corp.’s Merrill Lynch unit.

The benchmark Topix index has dropped 13 percent in 2016, reducing the weighting of the fund’s equities relative to the rest of its assets. A Bloomberg gauge of the nation’s sovereign bonds has added 3.4 percent through Tuesday. While GPIF has leeway to deviate from its target levels, further stock buying from the fund could help support the local market.

“GPIF investment in Japanese stocks might well underpin prices even as stocks feel downward pressure due to concern about the global economy,” Merrill Lynch strategists led by Shuichi Ohsaki wrote in a report Tuesday. If equities continue to weaken, GPIF “will probably have to further rebalance its portfolio.”

GPIF held about 38 percent of its assets in domestic bonds at the end of December and 23 percent in Japanese stocks, the fund said on Tuesday. The retirement manager targets 25 percent for domestic shares and 35 percent for local bonds, with a deviation range of 9 percent and 10 percent, respectively.

There are signs Japan’s public retirement managers have already been adding to holdings. Trust banks, whose clients include pension funds, purchased a record 500 billion yen in local stocks in the week ended Feb. 19, a 13th straight week of net buying.

Japan’s Topix index has risen 4.1 percent since the date used for Daiwa’s estimates.

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