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Finance GreenWatch » 4. Asset management & Pension » Speculation over public pension reform bolstering Japanese stocks (Nikkei)

Speculation over public pension reform bolstering Japanese stocks (Nikkei)

GPIF無題TOKYO — The Japanese stock market is increasingly sensitive to change at the Government Pension Investment Fund, as the buzz grows over various comments by public figures in the past several months pointing to a more stock-heavy investment slant at the behemoth pension fund.

The Nikkei Stock Average fell on Friday for the first time in five days amid caution over recent run up in prices, but the drop was a mere two points. “Now that the GPIF is about to take action, we cannot sell stocks at the moment,” said Akihiro Ohara, director of Societe Generale Securities (North Pacific), Tokyo Branch.

In an effort to beef up investment returns, the GPIF, which has 130 trillion yen ($1.25 trillion) in assets under management, is considering increasing its stock investment weighting from the current 17% or so, a move that would likely lift share prices.

On Friday, Norihisa Tamura, the welfare minister, urged the GPIF to speed up its reforms, prompting the fund to re-examine its plan for tweaking its asset management strategy.

Yasuhiro Yonezawa, a Waseda University professor who now chairs the GPIF management committee, recently noted the possibility of raising the fund’s stock investment to 20% of the total. Based on this, 3.6 trillion yen worth of fresh demand for stocks would be born, says Kenji Shiomura, senior strategist at Daiwa Securities.

Combining the figure with demand from other pension funds that align their investment strategy with that of the GPIF, would bring total new demand to 7.6 trillion yen, equivalent to half of the more than 15 trillion yen in net purchases made by foreigners that drove the stock rally last year.

As the GPIF unloads Japanese government bonds in a shift to stocks, the net effect would be additional monetary easing if the Bank of Japan buys those JGBs. That would push up the Nikkei average by 10%, says Junichi Makino, chief economist at SMBC Nikko Securities.

The GPIF’s moves are being closely followed by overseas investors, who have a major impact on the Japanese stock market.

Market observers speculate that the GPIF is already increasing stock investment even before updating its official guideline. For instance in May, trust banks that act on behalf of pension funds bought 687.3 billion yen more in stocks than they sold. This is believed to have been driven by purchases by the GPIF and Japan Post Insurance, among others, as they once again bought stocks after unloading them earlier in the year.

Filed under: 4. Asset management & Pension