• Bloomberg


There’s no time like the present for Japan’s pension whales to buy stocks and sell local bonds, according to Bank of America Merrill Lynch.

“Bond prices are high, and stocks are cheap, so it’s a good opportunity to sell high and buy low,” said Shuichi Ohsaki, the chief rates strategist at Merrill Lynch in Tokyo. “If they’re going to do it, they should do it now.”

The Government Pension Investment Fund and its three smaller peers, which manage a combined $1.9 trillion, have room to purchase $75 billion in Japanese stocks and offload $98 billion in domestic debt after an equity rout and tumbling yields sent the weightings in those securities veering off from their targets, according to Bloomberg calculations based on the money managers latest fiscal year results as of March.

The Topix gauge of shares is one of the worst performing developed markets this year, while the Bloomberg Japan Sovereign Bond Index has gained 5.2 percent, even amid a selloff after the Bank of Japan disappointed investors by keeping its monetary base and negative interest rate program unchanged on July 29.

GPIF, the world’s biggest pension fund and dubbed the whale as a result, said Friday it’s considering how it can best invest after recording a $53 billion loss in the fiscal year ended March.

GPIF, which manages about $1.3 trillion, had doubled its allocation to stocks and slashed Japanese bond holdings almost two years ago. Its revised portfolio target — 25 percent each for equities at home and abroad, 35 percent for domestic bonds and 15 percent for foreign debt — was adopted last year by the three smaller pension funds after they were ordered to unify their assets with those of GPIF.

The losses at GPIF for the fiscal year ended March 31 came after the Topix sank 13 percent while the yen climbed 6.7 percent against the dollar, reducing returns from its overseas investments. The only asset class to post a profit was local debt, which jumped in value as the BOJ’s adoption of negative interest rates sent yields tumbling to records. That increased the fund’s weighting in Japan government bonds to 38 percent of its portfolio, while local stocks shrank to 22 percent.

Among GPIF’s peers, the Federation of National Public Service Personnel Mutual Aid Associations, known as KKR, had about ¥6.7 trillion ($66 billion) in assets at the end of March and was the furthest away from its targets. It held 63 percent of its portfolio in Japanese bonds and just 15 percent in domestic stocks.

All four pension funds combined held 21 percent in local shares, 40 percent in Japanese bonds, 13 percent in foreign debt and 21 percent in overseas shares, Bloomberg calculations show.

Since March, the Topix has dropped 6.1 percent, while the yen has gained 11 percent versus the greenback. Benchmark 10-year JGB yields, which have surged this week, were minus 0.075 percent as of 11 a.m. in Tokyo Thursday. They touched a record low of minus 0.3 percent on July 8.

Still, with the BOJ’s continued purchases, this shouldn’t lead to bond prices sliding further, said Genji Tsukatani, Tokyo-based fund manager at JPMorgan Asset Management Ltd.

“Even though bonds have been sold off after the BOJ stopped short of taking rates further into negative territory and didn’t increase bond purchases, the debt market should be able to absorb selling by the pension funds and GPIF,” Tsukatani said.

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