The World’s Biggest Pension Fund Has a $26 Billion War Chest for Japan Stocks

(Bloomberg) -- Japan’s Government Pension Investment Fund has room to invest $26 billion in domestic stocks to keep holdings near its portfolio target, according to JPMorgan Chase & Co.

The world’s largest pension fund’s holdings of Japanese stocks fell to 23.6% of assets at the end of March, the lowest since March 2017. The weighting may have dropped to 23.3% as of July 5, meaning it can buy about 2.8 trillion yen ($26 billion) in shares if it rebalances in line with its target, according to JPMorgan’s securities unit in Japan.

A fresh injection of pension money into Japanese stocks may provide some relief to a market that has lagged its global peers this year amid an outflow of foreign money. The world’s largest money manager, BlackRock Inc., and Singapore’s biggest bank, DBS Group Holdings Ltd., became the latest institutions to lower their weightings of Japanese shares, citing everything from a stronger yen to concern about the fallout from the U.S.-China trade war.

“The GPIF will likely pour money into domestic stocks for rebalancing its portfolio,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo. “That will provide support to the Japanese stock market, especially when overseas investors have become bearish.”

The GPIF has a general target to keep 25% of its basic portfolio in domestic stocks, with the permissible range of deviation being 9%. At the end of March, the fund held 25.5% in overseas stocks and 17% in foreign bonds, higher than its targets, while its investment in domestic bonds and short-term assets stood at 34%, close to its 35% goal, according to an annual report released on July 5.

To read about the GPIF’s buying of currency-hedged bonds, click here

The fund’s domestic stock holdings probably fell to about 23% of assets at the end of June, according to calculations by Yohei Iwao, executive director of the institutional equities division at Morgan Stanley MUFG Securities Co. in Tokyo.

Part of the new purchases may target environmental, social and governance (ESG) equity investments, as well as currency-hedged overseas bonds, said Takafumi Yamawaki, head of local rates and FX research at JPMorgan. The GPIF held 3.5 trillion yen of ESG-related stocks at home and abroad, and about 1.3 trillion yen of hedged foreign bonds at the end of March.

The Topix index fell 1.7% as of the midday break in Tokyo. The benchmark is down more than 2% so far this week, heading for its worst weekly drop since May.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net;Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Naoto Hosoda, Kurt Schussler

©2019 Bloomberg L.P.