Japan pension fund gains US$39b as stocks climb

THE world’s biggest pension fund posted its fifth-straight quarterly gain – the longest run in more than two years – as global stocks advanced to new highs and weakness in the yen helped boost the value of overseas investments.

Japan’s Government Pension Investment Fund (GPIF) returned 3% or ¥4.5 tril (RM166.8 bil) in the three months ended Sept 30, increasing assets to a record ¥156.8 tril, it said in Tokyo on Nov 2. Domestic equities added ¥1.8 tril as the value of foreign equities increased by ¥2 tril, particularly boosted by the euro’s strength.

Prospects for higher corporate earnings have driven the Topix index to the highest in more than a decade, while US stock benchmarks climbed to records on confidence the world’s largest economy will sustain its growth. GPIF’s string of gains follows a series of losses after it overhauled its strategy in 2014 to buy more shares and cut debt.

“Their investment itself is going well, and going forward I don’t expect a lot of movement from them that would impact the market” says Koichi Kurose, Tokyo-based chief market strategist at Resona Bank Ltd. “Japanese stocks have been rising so there’s a possibility GPIF will sell to balance their portfolio, but right now I’m not hearing a lot of speculation on that.”

The fund’s Japanese stocks returned 4.8% over the three months, above the Topix’s rise of almost 4%. Overseas stocks added 5.6%, helped by a 3.4% drop in the yen against the euro, as well as weakness versus the greenback, increasing the value of foreign holdings when repatriated. The MSCI All-Country World Index of global stocks climbed 4.7% last quarter.

“At GPIF we manage assets from a long-term perspective,” GPIF president Norihiro Takahashi said in a statement on Nov 2.

The fund’s domestic bond holdings which accounted for 28.5% of total assets, posted a 0.2% gain. Foreign bonds added 2.5%, making up 14% of GPIF’s investments as of end-September.

Japanese stocks accounted for 24% of holdings, while overseas equities were 24% of assets. The target levels for GPIF’s portfolio are 35% for domestic debt, 155 for foreign bonds, and 25% each for domestic and overseas shares.

Alternative assets accounted for 0.1% of GPIF holdings, below the allowable limit of 5%. The fund has also invested around ¥1 tril into indexes that track Japanese stocks with high environmental, social and corporate governance (ESG) scores. GPIF announced on Nov 1 that it plans to consider investing in environmental indexes covering Japanese and foreign stocks.

“On ESG, GPIF is taking the lead, trying to create benchmarks for others,” says Resona’s Kurose. “I see others following that lead.”

This article first appeared in Focus Malaysia Issue 257.