Japan corporate pension funds seen selling stocks as govt pushes for reform

Mon Mar 31, 2014 6:01am EDT

Related Topics

* Employees' pension funds seen selling a few trillion yen
in stocks
    * Some appear to have already started selling stocks
    * Selling adds to pressure on recently sluggish Japan
equities

    By Tomo Uetake and Hideyuki Sano
    TOKYO, March 31 (Reuters) - Japan's corporate pension funds
are expected to sell down a few trillion yen of shares in the
coming years as the government pushes for reform of their
struggling operations, and some appear to have already begun
selling this month, market participants say.
    This selling is putting additional strain on Japanese
equities, which have been already hit by growing disappointment
among foreign investors over a lack of economic reforms. And it
runs counter to the aim of Prime Minister Shinzo Abe for more
pension money to go towards the domestic share market.
    "Pension funds are hoping to sell stocks when the markets
are good. Their selling is likely to increase in April," said
Masatoshi Kikuchi, chief equity strategist at Mizuho Securities.
    From April 1, the Japanese government will introduce new
measures to streamline employees' pension funds, which are
defined benefit plans that form a part of Japan's gigantic and
complicated pension system.
    There are about 560 employees' pension funds, collectively
managing about 18 trillion yen ($174 billion) of financial
assets, with 3.5 trillion yen in domestic stocks.
    Such funds are set up by a company or jointly by a group of
companies to offer additional pensions for their employees to
supplement public pensions.
    But more than a decade of economic stagnation and deflation
have meant paltry returns, leaving many funds underfunded. The
government wants to clean up these funds, ordering them to get
back in shape within five years or close shop.
    The Ministry of Welfare estimates that more than one-third
of these funds are planning to either dissolve or return assets
to the state, which means they have to cash out stocks they
have, market players say.
    While the funds have five years to deal with the issue,
market players expect many funds to act soon.
    In fact, some of these funds are already starting to take
action towards eventual liquidation ahead of the new measures
that take effect in April.
    The government offers incentives for funds, such as
extending the period to cover losses to 30 years from 15 years. 
    In one example, Horiba Ltd, a Kyoto-based
manufacturer of measuring instruments, announced last month that
it will book a special loss of 2 billion yen as the employees'
pension fund it belongs to decided to dissolve.
    Market players suspect some of the heavy selling in March
came from pension funds given that trust banks, which serve as
custodians for pension funds, sold more than 100 billion yen of
stocks early this month - 33.9 billion yen in the first week and
75.3 billion yen a week after.
    "In the second week of March, when the Nikkei fell almost
1,000 points. Trust banks tend to buy for rebalancing when the
market is down. So we need to think something abnormal was
happening," said Kenji Shiomura, senior strategist at Daiwa
Securities.
    "It's likely to be pension funds' selling. We could see more
such selling in coming weeks," Shiomura added.
    Selling by pension funds is likely to increase when the
market rises.
    "They want to sell at a high level. I would say they won't
sell much if the Nikkei is below 14,500 but there will be lots
of selling if it's above 16,000," said Mitsushige Akino, chief
fund manager at Ichiyoshi Asset Management.
    The Nikkei closed at 14,827.83 on Monday and lost 9
percent in the January-March quarter. 
    ($1 = 102.9250 Japanese Yen)

 (Additional reporting by Hirotoshi Sugiyama; Editing by Chris
Gallagher)
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.