UPDATE 2-Japan PM pushes GPIF to buy more stocks, amid talk it already is

Fri Jun 6, 2014 6:34am EDT

* PM Abe urges faster reallocation of GPIF's $1.26 trln assets

* Speculation that the fund already buying stocks, selling bonds

* Shift to 20 pct stocks from 12 pct would be more than $100 bln (Recasts throughout with market impact, calculations)

By Takaya Yamaguchi and Chikafumi Hodo

TOKYO, June 6 (Reuters) - Japanese Prime Minister Shinzo Abe pressed the world's biggest pension fund on Friday to quicken a shift toward investing more in stocks and less in bonds amid market speculation the fund may already have started moving cash into riskier assets.

As Abe seeks to end nearly two decades of deflation, his government is pressing the $1.26 trillion Government Pension Investment Fund to diversify its domestic bond-centric portfolio into assets such as Japanese stocks to generate higher returns for the fast-greying population and boost economic activity.

GPIF's managers will begin an asset-allocation review next week which could easily pump more than $100 billion into the Tokyo stock market - more than the market value of Softbank Corp , Japan's second-largest company by market capitalization.

Global financial markets are keenly watching GPIF's strategy review because the fund - bigger than Mexico's economy - is a huge investor and a bellwether for other Japanese institutional investors.

"I believe a review in GPIF's allocation must take place as soon as possible," Health Minister Norihisa Tamura told a regular news conference after receiving the instruction from the premier.

Tamura, whose Ministry of Health, Labour and Welfare oversees GPIF, would not say when the review will be completed, but market players had already been expecting results by around autumn, earlier than the initial target of March.

In recent weeks, expectations of fresh GPIF buying have helped Tokyo stocks rebound 8 percent to Friday's two-month high.

Some market participants wonder if GPIF may have begun shifting assets ahead of the formal reallocation, selling Japanese government bonds and buying shares.

Trust banks, for example, which manage much of GPIF's stock portfolio, bought an unusually large 246.6 billion yen of Japanese stocks more than they sold in the last week of May and 177.2 billion yen the previous week, Tokyo Stock Exchange data showed.

This brought their May purchases to 687.3 billion yen, the most since March 2009.

It is unclear how much of this money might be from GPIF, but market players view the trust-bank flows as a possible gauge of the giant fund's moves. Trust banks manage 70 percent of GPIF's passively managed stock portfolio.

Some bond traders, conversely, suspect GPIF sold Japanese government bonds (JGBs) last month, when selling was unusually heavy.

"We detected sales totalling about 100-150 billion yen in a week shortly after the Golden Week holiday" in early May, one JGB dealer said. "Such massive sales emerged in several other days in May."

Another bond trader at a Japanese financial institution said there was selling across all bond maturities, which would be consistent with GPIF shrinking its bond portfolio within its currently mandated limits.

GPIF targets 12 percent of its assets in Japanese stocks, 60 percent domestic bonds, 11 percent foreign bonds, 12 percent foreign stocks and 5 percent short-term assets. The fund has wiggle room of 6 percentage points either side of the core target for domestic stocks and 8 points for JGBs.

GPIF said in January it would employ its asset allocations more flexibly, allowing it avoid having to sell into rallies or buy on declines.

Yasuhiro Yonezawa, the recently appointed head of GPIF's investment committee, told the Nikkei business daily this week that the fund could raise its investment in domestic stocks to 20 percent.

An increase to 20 percent from 12 percent would represent a shift of 10.8 trillion yen ($105.39 billion) into stocks, more than Softbank's 9.35 trillion yen market capitalisation.

Founded in 2001, GPIF conducted the biggest shake-up of its investment strategy a year ago by revising its allocation targets to raise the core weighting for Japanese stocks while lowering that for domestic bonds. ($1 = 102.4750 Japanese Yen) (Reporting by Takaya Yamaguchi and Chikafumi Hodo; Editing by Eric Meijer and Kim Coghill)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.