GPIF: Domestic equity share to be 20%, rising from 12% - Nomura

By FXstreet.com | August 07, 2014 AAA

FXStreet (Bali) - Yujiro Goto, FX Strategist at Nomura, reviews the headline published by Reuters on Thursday, in which it was learnt that the GPIF is considering raising the share of domestic
equity in its new basic portfolio to more than 20%.

Key Quotes

"The GPIF, the biggest pension fund, is considering raising the share of domestic equity in its new basic portfolio to more than 20%, according to Reuters. However, after the Reuters article was released, GPIF President Mitani was reported by Bloomberg as saying no decision had yet been made on the changes and declined to comment on specifics."

"We currently expect the domestic equity share to be 20%, rising from 12%. Thus, a domestic equity share of more than 20%, as reported by Reuters, would be more aggressive than we expect. We estimate the share of pension funds currently held in domestic equity to be about 16-17%, so there could be a shift of nearly JPY5trn into domestic equity, even for a 20% share."

"The article also says that the domestic bond share is likely to be around 40% from the current 60%, in line with our expectations. A 40% domestic bond share is likely to be on the lower side of market expectations. Even though President Mitani declined to comment on specifics, we think the likelihood of our main scenario materialising, which would mean a considerable portfolio shift into risky assets, is increasing."

Trust banks, which manage pension fund money, continued to purchase Japanese equities in June, to the tune of JPY89bn ($0.9bn), for the third consecutive month. Pension funds‟ investment behaviour has been gradually changing since the beginning of this fiscal year, but we expect investment momentum to be stronger in H2 FY2014, after the GPIF‟s announcement of its new basic portfolio.

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