Institutional investors in Japan have shifted into riskier equities, supporting the recent rally in broader Japanese markets and stock related exchange traded funds.
Over the past three months, the iShares MSCI Japan ETF (NYSEArca: EWJ) has gained 10.7%. Meanwhile, yen-hedged Japan ETFs, WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP), increased 9.8% and 10.1%, respectively.
Three Japanese “semi-public” pension funds have shift assets into stocks and helped send Japan’s stock market up 10% in a little over a month, Reuters reports. [Japan ETFs Could Strengthen As Institutional Money Pours Into Equities]
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 hold a combined 29 trillion yen, or $284 billion, in of assets under management. The smaller pension funds have a low allocation to stocks.
Trust banks increased buying to 687.3 billion yen, or $6.8 billion, in May, the most since March 2009. In June, their buying spree continued, with an additional 200 billion yen in the first two weeks, or about $2 billion.
The three pension funds will be merged into the 129 trillion yen, or $1.26 trillion, Government Pension Investment Fund (GPIF), the world’s largest pension fund, next year. [Promise of a Pension Infusion Bolstering Japan ETFs]
However, a market source who is close on the matter said that the three pension funds’ managers were instructed to finish buying up shares before the end of June, which could potentially cause some short-term risk and a potential near-term correction in the market once the buying ends.
Prime Minister Shinzo abe has been pushing for public pension funds to shift away from conservative fixed-income securities and into riskier equities as a way to spur economic growth. Consequently, the GPIF is also expected to increase its allocation to stocks as well. Many market observers expect the GPIF to make a decision later this year.
iShares MSCI Japan ETF
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Max Chen contributed to this article.