June 25, 2014 / 8:37 AM / 5 years ago

Three Japan public pension funds buying stocks ahead of asset review - sources

TOKYO (Reuters) - Three Japanese “semi-public” pension funds aggressively bought Tokyo stocks in recent weeks, market sources said, acting before a review of their asset allocation policies is complete.

The funds’ buying helped Japanese shares to rally more than 10 percent in just over a month - though one source said the buying may come to a halt before month-end, posing the threat of a near-term correction to the market.All three funds declined to comment on whether they bought shares in the last two months.

The three pension funds - the Pension Fund Association for Local Government Officials, the Federation of National Public Service Personnel Mutual Aid Association and the Private School Mutual Aid System - manage a combined 29 trillion yen ($284 billion) of assets.

The funds will be merged into the 129 trillion yen ($1.26 trillion) Government Pension Investment Fund (GPIF), the biggest pension fund in the world, in October next year.

A market source, who was briefed on the matter, said the three semi-public pension funds transferred money to portfolio managers in May, requesting them to finish buying up shares before end-June.

Data from the Tokyo Stock Exchange also pointed to heavy buying by public accounts since May.

Buying by trust banks, which manage a large proportion of public pension funds, soared to 687.3 billion yen in May, the most since March 2009, when there was a whisper of buying by public accounts to prop up the market as share prices hit 25-year lows.

Trust banks’ stock-market buying continued in June, investing an additional 200 billion yen in the first two weeks - a sea change from their persistent selling when the market began rallying on hopes of Abe’s aggressive stimulus.

From mid-November 2012 to mid-May 2013, during which Japanese share prices gained almost 80 percent, trust banks sold shares in all but one week, selling almost four trillion yen worth.

Market players say trust banks’ buying was a major driving force behind a rally in Japanese shares since late May.

After hitting a one-month low on May 21, the Nikkei average has risen almost 10 percent and the broader Topix index almost 11 percent so far.

That gain compared with 3.8 percent rise in the U.S. S&P 500 index and 1.3 percent rise in ex-Japan Asian-Pacific shares.

The pension funds’ stampede into shares reflects Abe’s strong push to make public pension funds buy more stocks to spur economic growth by channelling money into risk assets, a major plank in his “Abenomics” platform to boost growth.

Against this backdrop, the country’s biggest retirement investor, the GPIF, is widely expected to increase its allocation to stocks.

Abe earlier this month called for the GPIF to speed up its asset allocation review. Many market players expect the final decision later this year, with several speculating the fund has already started moving funds into shares.

Currently the GPIF targets 6 - 18 percent of its assets to Japanese stocks and 52 - 68 percent to domestic bonds, but market players expect the stock allocation target could be raised to a range around 20 percent.

As of March last year the three semi-public funds held 3.5 trillion yen in domestic shares, compared to 5.8 trillion yen if they were to allocate 20 percent of their funds to stocks.

Compared to the GPIF, two of the three smaller pension funds have a much lower allocation to stocks, suggesting they will need to sharply increase their holdings of shares as the planned merger in 2015 approaches.”It would not be a surprise if pension funds other than the GPIF are changing asset allocations now,” said Kenji Abe, chief equity strategist at Citigroup Global Markets Japan.

($1 = 102.0500 Japanese Yen)

Editing by Eric Meijer

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