Rally For Stocks in Japan: Is It Really Coming?

Data Shows Surge in Japan's Industrial Production
Data Shows Surge in Japan's Industrial Production

The biggest question about the reallocation of funds by the big institutional investors in Japan is that when will the same happen. This shift will bring in momentum for the lately pummeled stock market in this country. Government in Japan is expected to advocate support from the public pension fund, which are more than $2 trillion in amount, while increasing exposure to overseas assets and equities. Even Prime Minister Abe’s long-term plan, signals the same.

As per the ongoing portfolio strategy, the GPIF that manages the retirement savings for government employees is targeting 11% percent distribution for domestic stocks. In addition, a 6% band rise or fall for specifically targeted equity holdings is anticipated.

The band flexibility is likely to go up. In addition, seeing the quasi-sovereign wealth fund aspect of GPIF, the government might branch out risk assets from the pension money. Meanwhile, the shift out of government bonds into equities is not something that may occur suddenly.

In the past two weeks, Nikkei 225 in Japan has seen a deep correction by plummeting by almost 16%. For the meantime, experts believe that official announcement about the allocation of pension funds may motivate traders to re-penetrate the market.

Investors in Japan sold 1.2 trillion yen in the week that ended May 25 on abroad bonds. This was after the selling of 800.6 trillion in the previous week that defied estimate that the purchase of asset by the Bank of Japan might loosen the domestic yield and push overseas investors.

The bond yield for the government in Japan rose last month, which has lured the domestic institutions again into the sovereign arrears. However, this might be altered due to settlement in bond yields.

A report released recently, indicated that the outflow of around 600 billion is expected over two years, once the Japanese Government Bond settles down.

Among the big bond markets, the U.K., U.S., and hub euro zone is anticipated to benefit, while Italy and Spain is expected to remain stable as well. Considering the developing markets, Mexico, Turkey, and Malaysia are expected to be the targets in the future.