JPY: GPIF’s cautious stance continued in Q3 - Nomura

Yujiro Goto, Research Analyst at Nomura, explains that the GPIF, Japan’s biggest pension fund, released its fiscal result for Q3 (Jul-Sep) and the latest result shows limited portfolio investment activity by the GPIF again in Q3.

Key Quotes

“After excluding valuation effects, we estimate the fund sold domestic equities (JPY21bn or $0.2bn) and foreign equities (JPY208bn or $2.0bn). The GPIF was a small net buyer of foreign bonds (JPY195bn or $2.0bn), but its investment in riskier assets was limited for the second consecutive quarter. Various portfolio flows by investor-type data also point to weaker portfolio investment activity by trust banks (pension funds) during the period. Thus, the GPIF’s cautious stance in Q3 is unsurprising.”

“The fund’s exposure to short-term assets increased during the period. Its share of domestic bonds has declined to 36.2% from 37.6%, approaching the central target (35%). However, its share of risky assets is still far from the target. Its share of domestic equities was 21.6%, declining from 21.8% the previous quarter (central target: 25%). Its share of foreign bonds (12.5%) and foreign equities (21.0%) also fell from the previous quarter (central target: 15% and 25% respectively).”

“In contrast, its share of short-term assets has risen to 8.8% from 5.5% the previous quarter. The estimated short-term assets held by the GPIF and the Pension Special Account have risen to JPY12.3trn ($109bn) and the future direction of investment will be important for JPY. The fund may keep its short-term asset share at a high level, but if it diversifies into other asset classes based on the target share (40% for foreign assets), there would be nearly JPY5trn of JPY selling.”

“The GPIF portfolio data confirmed its cautious stance in H1 FY2016, while the latest financial results of major lifers also showed their cautious stance on FX risk-taking. Our individual investor survey also showed retail investors’ cautious stance ahead of the US presidential election. Domestic investors’ cautious stance was one of the reasons behind the JPY’s appreciation until recently, but potential changes in their stance under the new BOJ policy framework and the global reflationary trend should support JPY weakness.”