The world’s largest retirement fund held back from plowing into Japanese equities last quarter, its investment results signaled, even as the market rebounded in anticipation of purchases.

The value of the Government Pension Investment Fund’s Japanese stocks rose 5.4 percent in the April-June period as the retirement savings manager earned a 5.1 percent return on the assets, according to a statement Friday.

Domestic shares accounted for 17.3 percent of investments at the end of June, up from 16.5 percent three months earlier. GPIF posted a return of 1.8 percent in the quarter as its holdings swelled to ¥127.3 trillion, after a 0.8 percent loss in the period through March.

“Their results show they didn’t buy as much Japanese stocks as the market had expected,” said Gentoku Kiyokawa, Tokyo-based director of investment management at BNP Paribas Investment Partners, which oversees the equivalent of $655 billion in assets globally. “There’s still room for them to buy should they decide to lift the allocation. But that’s not announced yet and we don’t know what the weighting will be. I think market speculation has run ahead of the reality.”

Investors are watching the fund, which oversees assets worth about as much as Mexico’s economy, to gauge how it’s preparing for a strategy change expected as soon as this month.

GPIF is expected to increase Japanese shares to 20 percent of holdings and reduce domestic bonds to 40 percent, according to a Bloomberg News survey in May. The fund would need to buy ¥3.5 trillion of domestic stocks to reach the 20 percent target, according to calculations by Bloomberg based on the June figures released last week.

The Topix index jumped 5 percent last quarter as investors speculated on the timing and size of the fund’s purchases, after slumping 7.6 percent in the three months through March.

GPIF official Shigehito Aoki, speaking at Friday’s briefing in Tokyo, declined to comment on whether the pension manager had actively bought stocks or sold bonds last quarter.

“Had GPIF made a big move, the market impact would’ve been much stronger,” said Kenji Shiomura, a senior strategist at Daiwa Securities Group Inc. “The key now is the time frame they get to make the allocation changes. If it’s five years, they won’t need to do much to boost stock holdings because a lot of domestic bonds will mature. GPIF won’t be buying a lot of shares unless they set the time frame for one or two years.”

Domestic debt made up the smallest share of the fund on record at the end of June, while the ¥67.9 trillion invested in the asset class was the least since the end of 2012. The proportion invested in local stocks was the most since the three months ended March 2006. GPIF earned 0.7 percent on its Japanese debt, the same return as on a gauge of the nation’s sovereign bonds compiled by Bloomberg.

GPIF’s assets under management rose from ¥126.6 trillion on March 31, while remaining below a record ¥128.6 trillion at the end of December. Foreign equities returned 3.1 percent last quarter, while overseas bonds posted a 0.6 percent gain. The yen strengthened 1.9 percent against the dollar.

GPIF has a 60 percent target for domestic debt and 12 percent for Japanese stocks, with 8 percent and 6 percent deviation limits respectively for those assets.

“If we assume an allocation target of 20 percent for Japan equities, we expect around 3.73 percent of upside in the Topix,” Morgan Stanley MUFG Securities Co. quantitative and derivative strategists led by Yohei Iwao wrote in a report last week, noting that their calculation didn’t take into account the “impact of follow-on inflow due to signaling or improvement in sentiment.”

Foreign stocks accounted for 16 percent of the fund’s assets at the end of June, bringing total equity holdings to a third of the fund’s investments. Overseas debt, which also includes infrastructure, made up 11.1 percent of GPIF’s portfolio.

The fund will announce its new asset allocations in fall, according to GPIF investment committee Chairman Yasuhiro Yonezawa. Prime Minister Shinzo Abe has ordered that the review be sped up. The fund will seek to limit the impact on domestic bonds when reducing holdings, Yonezawa said in an interview in July. GPIF needs to avoid disrupting the markets, and moving before announcing portfolio changes would be ideal if it doesn’t cause waves, he said.

Changes to how the fund is run are also being debated. Yasuhisa Shiozaki, deputy policy chief of the Liberal Democratic Party, said last month that GPIF should fix its governance before altering its portfolio. A law to transform how the fund is overseen can wait until after the asset review, LDP official Seiji Kihara, who worked on the bill, said Aug. 12.

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