February 27, 2015 / 8:22 AM / 5 years ago

UPDATE 2-Japan's GPIF buys more stocks than expected in Q4; slashes JGBs

* GPIF’s Japan stocks up to 19.8 pct of portfolio Q4

* Pension giant’s JGBs drop to 43.1 pct

* Buying at double BOJ’s pace, could further boost Nikkei (Recasts, adds details, analysis on stock buys)

By Takashi Umekawa

TOKYO, Feb 27 (Reuters) - Japan’s trillion-dollar public pension fund bought nearly $15 billion worth of domestic shares in the fourth quarter, more than expected, while slashing its Japanese government bond holdings as Prime Minister Shinzo Abe prods the nation to take more risks to spur economic growth.

The bullishness toward Japanese equities by the Government Pension Investment Fund, the world’s biggest pension fund, boosted hopes in the Tokyo market that stocks have momentum to add to their 15-year highs.

GPIF said on Friday its holdings of domestic shares rose to 19.80 percent of its portfolio by the end of December from 17.79 percent at the end of September. Yen bonds fell to 43.13 percent from 48.39 percent.

Adjusting for factors such as the Tokyo stock market’s rise of roughly 8 percent during the quarter, GPIF bought a net 1.7 trillion yen ($14 billion) of stocks in the period, reckons strategist Shingo Kumazawa at Daiwa Securities.

GPIF’s investment changes are closely watched by markets, as a 1 percentage-point shift in the 137 trillion yen ($1.15 trillion) fund means a transfer of about $10 billion.

With assets bigger than Mexico’s annual economic output, the fund is considered a bellwether for other big Japanese institutional investors.

If GPIF maintained its fourth-quarter pace of Japanese stock buying for a year, the 6.8 trillion yen total would be more than double the amount the Bank of Japan buys under its massive easing programme.

The fund drastically changed its investment strategy in October in line with Abe’s push, slashing its allocation target for JGBs to 35 percent from 60 percent, while roughly doubling the targets for foreign and domestic stocks to 25 percent each. GPIF has latitude to vary its holdings above or below target levels depending on market conditions.

A smaller public pension fund this week raised its domestic-share target to 25 percent from a lower base of 8 percent. If its two fellow mutual-aid funds follow suit, as expected, the three would be set to buy a further 3.5 trillion yen in Japanese equities.

“In addition to the buying from public pension funds like GPIF and the three mutual-aid societies, companies are becoming more active in share buybacks ahead of their June shareholders’ meetings,” said Yasuhiko Kuramochi, chief strategist at Mizuho Securities.

“The recovery momentum in the domestic economy and corporate earnings is accelerating and return on equity is providing a tail wind, so I expect the Nikkei to touch 20,000 in the second quarter.” That would mean a further gain of 6.4 percent from Friday’s close, the highest since April 2000.

GPIF’s foreign bond holdings rose to 13.14 percent in the fourth quarter from 11.84 percent and foreign stocks rose to 19.64 percent from 16.98 percent.

The fund said it earned a return of 5.16 percent for the quarter, or about $55 billion, the second-highest, helped by the Bank of Japan’s October monetary easing and a decline in the yen.

Foreign bonds returned 2.62 percent and overseas shares 2.74 percent, but those yen returns were inflated by a 10 percent rise in the dollar against the Japanese currency for the quarter.

Abe’s office recently baulked at a proposal to create a large board to oversee GPIF, which proponents say would more safely manage the fund’s riskier portfolio. ($1=119.3600 yen) (Additional reporting by Daiki Iga; Editing by Chris Gallagher, Kim Coghill, William Mallard)

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