Panel on best corporate practice sets 8% as minimum ROE

The final report* of a 53-member panel set up by the Ministry of Economy, Trade & Industry to debate the global standards of corporate governance most applicable to Japan received little media coverage when it was published last month. Now its chairman, Professor Kunio Ito of Tokyo’s Hitotsubashi University, has been talking to Blooomberg:

September 17, 2014

The shareholder-return target Japan’s government set last month will spur change at the majority of the nation’s companies that don’t meet it, said Scott Callon, an investor who advised on the policy.

The 8 percent goal for return on equity agreed in a trade ministry review shows executives, government officials and investors are determined to see higher profits at Japanese businesses, according to Callon, who was the only foreigner on the panel that decided the target. A specific level will focus companies and give asset managers a standard to press them to achieve, he said. Just 792 of the 1,816 stocks on the Topix index have equity returns of at least 8 percent.

“This is the first explicit statement ever by the Japanese government that a minimum return is necessary in a public company to fund Japan’s future,” Callon, who oversees about $2.5 billion as head of Ichigo Asset Management Ltd., said in an interview in Tokyo on Sept. 8. “Driving low-performing companies to minimum acceptable levels is the biggest task. If you can get every company to 8 percent or above, that’s transformational.”

The report on best practices at the nation’s companies and financial industry, known as the Ito review after the panel’s chairman Kunio Ito, of Hitotsubashi University in Tokyo, is the latest measure aimed at making Japan’s companies more profitable and less prone to holding cash as the nation exits 15 years of deflation. Other steps include a government-backed stock index that picks companies with high profits and a stewardship code to enlist asset managers to engage in dialogue with firms on improving performance.

Below Average

The 44 percent of Topix companies making the grade compares with 78 percent of firms in the Standard & Poor’s 500 Index, data compiled by Bloomberg show. The profit delivered on shareholders’ funds at Topix companies was half the global average in the 10 years through 2013. The measure fell 0.5 percent today in Tokyo, while the Nikkei 225 Stock Average slid 0.1 percent.

The review says Japan’s ROE falls short because profit margins are “significantly lower” than in the U.S. and Europe and companies hold excessive cash and deposits. The 8 percent target was picked because it exceeds the cost of equity capital assumed by most overseas investors, the review states.

“I would describe this project, along with much of the revitalization strategy, as Japan opening up to the world,” said Callon, 49. “One powerful way to motivate Japanese actors is to say, ‘this is what the global standard is.’”

53 Members

The 53-member panel of academics, company representatives, investors and government officials debated for a year about which global best practices could be applied to Japan, paying particular heed to European models of corporate governance, Callon said, as they are less combative than the U.S. approach. While one goal was to attract overseas investors, the project’s ultimate motivation was to make the most of the nation’s assets in a mature economy with a shrinking population, he said.

The 130-page report, modeled on the Kay Review in the U.K., calls for the establishment of a forum for companies and shareholders to discuss issues from how businesses should disclose information to ensuring “constructive dialogue” between executives and investors. The debate about how companies are run in Japan has often been presented as a choice between focusing on customers and staff or shareholders, whereas those are not mutually exclusive, Callon said.

The management-investor forum will start this fall, most likely from October, and meet two or three times a year, Ito said at a conference in Tokyo on Sept. 10.

ROE Debate

A focus on ROE isn’t new in Japan and has its own dangers, according to Hajime Kitano, an equity strategist at Barclays Plc in Tokyo. The Ito review is a “rehash” of a book published in 1994, Kitano wrote in a note last month. The ROE level set is arbitrary, and too high as efforts to boost profit margins through cost cutting may end up amplifying deflationary pressures and shrink the economy, he said.

Others have the opposite concern. Targeting a specific level of ROE could create a misunderstanding that reaching that goal is enough, Naoki Kamiyama of Bank of America Corp.’s Merrill Lynch unit in Tokyo wrote in a report dated Aug. 13.

For Callon, who has degrees from Princeton and Stanford universities, the report is already having having an impact.

Ichigo Asset “went to see a Japanese public company last week,” he said. “The head of finance said he had assigned the Ito review to every single person in the finance department. They had all read it.”

Boosting Japanese companies’ performance through corporate governance was positioned as a key pillar of Prime Minister Shinzo Abe’s growth strategies announced in June.

No Place

“Business in Japan is being transformed,” Abe said in a letter translated by Merrill Lynch and read out at its investor forum in Tokyo on Sept. 10. “Strengthening corporate governance is at the top of my reform agenda. There will be no place for the old-style company in the age of Abenomics.”

The Ito review also criticizes Japan’s sell-side analysts, saying an overly short-term focus and insufficient fundamental analysis are problems that need to be addressed.

Mitsubishi UFJ Morgan Stanley Securities Co. is changing to a “back-to-basics approach” due to the criticism of the industry in the Ito review, and will focus more on company fundamentals, the brokerage wrote in a note dated Sept. 5. It’s changing its rating system from one that forecasts returns versus the Topix to peer comparisons or absolute returns.

The Ito review is supposed to complement the stewardship code, the JPX-Nikkei Index 400 and rules on corporate governance currently being planned by the Financial Services Agency and the Tokyo bourse, according to Callon, who says the change taking place in Japan has support across the spectrum of government and industry.

“The mainstream has gone full acceleration for reform,” said Callon, who’s been in Japan for 25 years. “It’s the first time in my career I’ve seen that.”

* For the full text of the report or an executive summary go to http://www.meti.go.jp/english/press/2014/0806_04.html and scroll down to “Text of the report”.

http://www.businessweek.com/news/2014-09-16/profit-laggards-seen-catching-up-as-japan-seeks-8-percent-return

Posted in Articles | Leave a comment

At pension funds demographics + decumulation = 20/30% JGBs

Figures just published* by the Japan Investment Advisors’ Association show that corporate and civil service pension schemes’ assets managed in segregated accounts under mandates held by JIAA member firms the rose only 0.53% in the first quarter of the 2014/15 financial year, ending 30 June, to reach 26,563.3 billion yen despite a 2% rise in the Nikkei 225 during the period and gains for European and US stocks. Year-on-year the number was up by 2.15%.

Such constrained increases are largely a result of the demographics that have drawn the funds into an era of decumulation where they will forever have more going out annually in benefits than they have coming in each year via contributions, and the gap is widening.

During the quarter the amount which JIAA members managed for the Government Pension Investment Fund rose 1.76% to 79,772.3bn yen, almost exactly three times what they invested for non-GPIF customers. While this rise was 4.53% year-on-year most of it came before the current financial year began.

(The sum managed for GPIF by JIAA member firms omits amounts under the stewardship of Resona Bank and Mitsubishi UFJ Trust and Banking, neither of which is a JIAA member, and the yen fixed-income portfolio which is managed in-house. It is therefore is less than than the giant’s own number for its total assets.)

While the number of mandates held in respect of non-GPIF funds fell again to reach 4,727, the lowest in a decade, mandates from the Fund rose to 232 from 226 a year ago.

All told, assets under management rose 2.48% quarter-on-quarter to 172,423.0bn yen of which 25,714.4bn yen came from overseas customers.

The JIAA does not break down its numbers to show in what asset classes each type of investor puts its funds.

Assuming that the amount under management for foreign clients is invested in Japan, then domestic clients, of which pensions make up 74%, appear to allocate their funds as follows:

  • Japan bonds 32.94% (down from 35.41% a year ago and 33.02% a quarter ago)
  • Japan stocks 26.25% (up from 23.82% and 25.43%)
  • Foreign bonds 27.49 (compared with 27.42% and 27.50%)
  • Foreign stocks 18.71% (compared with 16.43% and 18.32%).
  • The rest is in ‘real-estate related securities ’ and short-term investments.

Such dispositions are not inconsistent with the percentages reported by Pension Fund Association members (see story below), all of which are from the private sector. JIAA totals for Japanese pension funds other than GPIF are different from those of the Bank of Japan because they cover only segregated accounts and thus do not include money in pooled ‘general accounts’ at life insurers and trust banks (for an update on which see this blog next week).

GPIF has such a huge weight in JIAA totals that it is difficult to discern any trends among corporate schemes. However, it does appear that they too are holding on to their Japan Government Bonds. This is partly a function of their need for cash to pay mounting benefits bills.

JIAA numbers do not include amounts managed for mutual funds. These appear instead from the Japan Investment Trusts Association.

* Currently in Japanese only at www.jiaa.or.jp/toukei. Usually available in English after about one week at www.jiaa.or.jp/toukei_e/index.html

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

Posted in Articles | Leave a comment

PFA report on member funds’ asset allocation and returns

A Pension Fund Association survey of asset allocation at the company retirement schemes which make up its membership shows that at 31 March 2013 they had 14.90% of their portfolios in Japanese stock, 27.6% in domestic bonds, 12.96 in overseas bonds and 16.76% in foreign stocks. Of the rest, 13.47% was in so-called ‘general’, or pooled, accounts with trust banks and life insurers and the remainder in other assets. The survey was done among 1,300 of the PFA’s 1,560 members of whom around 70% (or 900) responded.

For the year under review foreign equities brought in the best return at 28.45% while local stocks delivered 17.51%. Japanese bonds predictably earned next to nothing at 0.66% while overseas fixed income hit 11.89%.

It has long made sense for company retirement schemes to invest in growth economies abroad. They are caught in a double demographic bind which is shrinking the country’s workforce, and therefore opportunities for investment in growth companies at home, and has at the same time set them on course for annual decreases in contributing members and  increases in the numbers of retirees as far as the eye can see.

With the yen having now apparently ceased its perpetual strengthening and stable at above 100 to the US dollar, company schemes can go offshore without fearing that their rewards will disappear on conversion into the local currency.

Even so, growth in the percentage of corporate schemes’ portfolios accounted for by overseas equities has not been smooth and it has not yet topped the 17.53% seen in 2010. Similarly, the drop on holdings of domestic stocks has seen bumps along the way but by March last year was at a very low 14.90%.

PFA asset allocation 2008-2013The PFA’s survey results give only percentages and  no yen numbers — not even for the total amount which members have under management. This has led to media coverage which has struggled to give context to the report.

So much so that one newsletter confused the value of PFA members’ funds with the 11.7 trillion yen which the Association manages on behalf those who have left their jobs and therefore their employers’ schemes.

Another conflated the PFA report with one published by the Nikkei around the same time based on data from 300 ‘major’ (not further defined) companies’ pension funds which put their total assets at 48tr yen at the end of March 2014 when Bank  of Japan flow of funds data put corporate schemes’ assets at 120.9tr yen.

The total ‘portfolio’ figures in the table above are those of the Bank of Japan. Remember not all PFA funds were included in the survey results of which are here

 © 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

Posted in Articles | Leave a comment

Will Shiozaki use GPIF’s clout to see off cross shareholdings?

The surprise appointment of Yasuhisa Shiozaki as Minster of Health, Labour & Welfare, and thus the man with oversight of the Government Pension Investment Fund, announced on 3 September as part of a cabinet reshuffle, has been trumpted for its potential to bring to GPIF the revolutionary asset allocation changes the stock market would like to see.

The new minister lost no time in recommending that the Fund move into venture capital noting that, according to the Nikkei, “‘No professional [investor] in the world holds to the stereotype of venture-stage companies as dangerous” … [before] arguing that adding start-ups to the Fund’s investments could both generate returns and provide risk capital for economic growth’.

Yasuhisa ShiozakiMr Shiozaki (pictured at left) had previously spoken of the need to make changes to the GPIF’s governance before re-jigging its portfolio (see archive 6 August 2014) but with a plan to restructure holdings now expected within the current calendar month there would be little time for such moves to be digested – which may be the point.

This former cabinet secretary and Bank of Japan official also has ambitions to change the structure and governance of Japan’s publicly quoted companies and it should not be surprising if he began waving the big stick of GPIF – the world’s largest institutional investor – to chastise companies which cling to cross-shareholding arrangements.

These, he believes, allow firms to be unresponsive to shareholders’ needs.

As ijapicap reported on 14 April this year in a posting on the introduction of the new corporate stewardship code :

“[Mr Shiozaki said that] ‘Japan … could implement regulations to reduce cross-held shares within a deadline of five years’ but did not say when such rules might be written.

“He noted too that ‘cross-held shares were once pervasive in Germany … until former German Chancellor Gerhard Schroeder oversaw reforms to pare back the practice. This helped improve the efficiency of companies’.

“Mr Shiozaki reports a ‘very stimulating discussion’ on this point with Mr Schroeder with whom he also spoke on the requirement in the German and UK governance codes for companies to appoint a certain number of outside directors.

“He believes such codes ‘carry more weight than principles mandated by securities exchanges’ and that in Japan the Ministry of Economy, Trade & Industry would anyway not approve efforts to mandate appointments of outside directors based on exchange rules ‘reflecting opposition from [the] Japan Business Federation’.

“He then added, intriguingly, ‘I plan to enact the changes in one shot if I become prime minister’”.

Perhaps he is now plans to move via a different route.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

Posted in Articles | Leave a comment

Government Pension Investment Fund closer to 20% in stocks

The Government Pension Investment Fund closed the first quarter of the 2014-15 financial year on 30 June with 47.63% of its portfolio invested in the Japanese bond market compared with 49.01% three months earlier.

The giant vehicle’s holdings of FILP (Fiscal investment and Loan Programme paper) also continued to fall on the schedule set when the former Nenpuku became GPIF in 2002.

As a result, overall holdings of Japanese debt fell from 55.43% of end-March total assets of 126,577.1 billion yen to 53.36% of 127,264bn yen, a drop of 2,249.4bn yen. Text continues below charts.

GPIF assets March & June 2014 pie chartsThe biggest beneficiaries were short-term assets which rose from 1.46% to 2.34%, to stand at 2,973.7bn yen, and Japanese equities which climbed from 16.47% to 17.26% to 21,070.9bn yen – a jump of 1,124.3bn yen.

There has been a widespread belief among Japan’s asset management community that GPIF would raise its target allocation to stocks to 20%. If its buying has been maintained during July and August, as seems likely, and continues into September, then by the end of the second quarter it will have only 2% to go.

That would mean another 2tr yen flowing into the market – around the same amount that the three mutual aid associations which move under GPIF’s umbrella next year are also expected to commit to equities (see archive 11 August 2014 Big three mutual aid associations ready to line up with GPIF)

The more interesting point from here on will be how much all four funds will send abroad. According to the Nikkei on 30 August:

‘With the GPIF revising its investment strategy and mutual aid pension funds expanding their overseas portfolios, associated yen-selling from July onwards will reach at least 13.7 trillion yen, according to an estimate by Goldman Sachs Japan.

‘”Expectations of an onslaught of yen sales is pushing the drop in its value,” said Goldman’s Masahiro Nishikawa.”‘

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

Posted in Articles | Leave a comment

Life cos’ foreign assets up 12%, long-awaited exodus begins

The foreign securities holdings of Japan’s 43 life insurance companies were up 12.35% year-on-year at 30 June when they reached 63,822 billion yen while total invested assets rose 2.40% to 345,751bn yen, according to figures just published by the Life Insurance Association of Japan.

Overseas stocks and bonds made up 18.5% of all portfolios, the highest since 2007 when Japan Post Insurance joined the industry group and pushed the proportion down to 13.5% of total invested assets of 320,404bn yen.  Story continues below table.

Life cos assets 30 June 2014At the close of the prior quarter on 31 March 2014, Japan Post Insurance had foreign securities holdings of 1,519bn yen (see story immediately below) or 2.5% of the all-firms’ total.

If JP Insurance bought during the quarter ending 30 June all of the 300bn yen in foreign bonds it indicated it may acquire in the current financial year, that would mean other life cos’ overseas holdings have risen by 2,071bn yen — or an amount similar to that of the postal giant at each of the large players.

While all the LIAJ’s 43 members submit numbers to it the market is dominated by half a dozen firms. With the start of the financial year on 1 April these giants and their smaller brethren will have begun implementing asset allocation decisions made in the New Year.

In its most recent semi-annual poll of those intentions, Reuters found (see archive 29 April 2014 Life cos tend to caution not big shifts in asset allocation) increased overseas investment to be the only discernible trend. But much depended on the track taken by the Japanese currency.

On 1 April 2014 the yen was at US$1=103.54 (yen 1 = US$0.0096581). By 30 June it had risen by 2.2% to US$1=101.29 (0.0098726) resulting in a comparable impact on foreign holdings at the valuation date. Today the yen was back at US$1=103.74.

It looks as though the long-awaited investment exodus by the life cos may have begun but another couple of quarters will be needed before it can be said to be firmly in place.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

 

Posted in Articles | Leave a comment

Japan Post Insurance adds 279.5bn yen in foreign securities

Japan Post Insurance closed its financial year on 31 March with foreign securities holdings up 22.55%, or 279.5 billion yen, on 12 months earlier to total 1,519 billion yen.

Commenting to the Nikkei a Japan Post official said that the country’s, and the world’s, biggest life insurer by assets may invest an additional 300bn yen in foreign bonds by the end of this fiscal year.

Japan Post Insurance assets 2013-3-31  2014 3-31When expressed as a percentage of the giant’s overall portfolio the changes look miniscule.

Foreign securities are up from 0.75% to 0.92% while government bonds are down from 31.36% to 30.86%. When municipal bonds are included the numbers budge be even less — falling from 36.84% to 36.53%.

Small wonder that the Abe government has wanted the focus to stay so intently (see posting below) on asset allocation at the Government Pension Investment Fund and the three Mutual Aid Associations which will eventually adopt its allocation strategy .

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

Posted in Articles | Leave a comment

Nikkei continues relentless flogging of GPIF+Mutual Aids horse

The Nikkei reported yesterday that combined demand for stocks from the Government Pension Investment Fund, the Federation of National Public Service Personnel Mutual Aid Associations, the Pension Fund Association for Local Government Officials and the Promotion & Mutual Aid Corporation for the Private Schools is likely to hit 6.6 trillion yen.

As regular ijapicap readers will know the three MAAs are thought likely to buy 2.2tr yen of stock (see posting immediately below) and GPIF about 4.4tr yen. The Fund may have already bought half of that and the other 50% could be fulfilled through mopping up sales by corporate pension funds (see archive 28 July).

‘The question is’, says the Nikkei, ‘by how much demand for Japanese stocks will arise once the funds pour money into the market?’

Since none of the four investment vehicles wants to buy at the top of the market and then watch the value of their holdings dwindle, the more relevant question is: how will the funds be flowed into the market and what impact that will have on prices?

Masahiro Nishikawa, vice president of the securities division at Goldman Sachs Japan, makes sensibly modest claims telling the Nikkei that ‘the funds are likely to underpin Japanese stocks’ but then adding ‘the pace of buying will slow when the overall market gains momentum’.

And that is really the question: the buying by all four vehicles is a series of on-offs. Where does momentum come from next? The fact that the Nikkei is flogging the GPIF+MAAs  horse so relentlessly suggests that there is not much else coming over the horizon.

Even more interesting: who is feeding the newspaper this diet of constantly upbeat stuff? When does it stop?

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

 

Posted in Articles | Leave a comment

Big three mutual aid associations ready to line up with GPIF

Whatever the Government Pension Investment Fund’s new asset allocation turns out to be, two of Japan’s three giant Mutual Aid Associations have lined up the external management needed to emulate it — fuelling a fresh round of optimism on demand for shares just when it was needed

The story began in the Autumn last year when government appointed a panel of experts to look at the asset mix of the Pension Fund Association for Local Government Officials (Chikyoren), the Federation of National Public Service Personnel Mutual Aid Association (KKR) and the Promotion and Mutual Aid Corporation for the Private Schools of Japan, as well as that of GPIF.

MAAs plus 20 pc stocksThe panel recommended, broadly, that all four funds cut back their holdings of Japanese government debt, buy equities in the hope of getting better returns, and follow the same asset allocation guidelines as each other from October 2015.

The received wisdom is that this will see GPIF, the behemoth among the behemoths, and the other funds moving 20% of their portfolios in domestic shares. That would mean the three MAAs putting a combined 2.2tr yen of fresh money into the equities.

KKR proved the first to move. By January last year it was seeking active managers for foreign stocks after its investment committee recommended that the overseas portion of its 7.76tr yen portfolio be increased from 5% to 8%. A year later it awarded 13 such mandates.

At the same time it announced a search for active managers KKR new active equities mandatesof its domestic stocks (see archive 7 February 2014 Civil Servants seek active domestic equities managers) and on 25 July announced the appointment of 14 (see table) but gave no amounts or benchmarks.

Nissay Asset Management Corporation and Nomura Funds Research are both new to the KKR roster as is Capital International which has not previously held an MAA mandate. FIL Investments, as Fidelity is known in Japan, has not had an MAA mandate for two years but now returns with KKR.          Story continues below table

Chikyoren's new equities manatesChikyoren following suit announcing a new line-up of 18 active equities managers in early August. Its roster also includes Capital International along with additional newcomers Wellington International Management, Daiwa SB Investments, and Allianz Global Investors which now has it first MAA mandate.

A Bloomberg story of 5 August quoted various market participants and commentators, including the tirelessly talkative Takatoshi Ito, as noting that moves by the three big MAAs would be good for the stock market.

Kenji Shiomura, a strategist at Daiwa, saw even greater potential in the development than has previously come to light because ‘Many people don’t fully understand how the system works for local civil servants’. This is a reference to the number of smaller funds that could implement the same guidelines.

ijapicap readers will understand it if they read the profile on Chikyoren which appeared on 8 November 2011 (see archive) and How Abe’s arrow falls short of supposed target on 6 June 2013.

It is not as juicy as it first sounds and smacks of the themes machine which will probably look for its next one-off boost to the 4tr yen portfolio of Serama, the Small Enterprise Retirement Allowance, a profile of which is coming soon to this blog.

A table showing which fund managers held mandates from the whole range of MAAs, including those at local level, at 31 March 2013 appears under the Chikyoren section of the ‘Giants’ tab above

Please note that the numbers in the first table above are also at 31 March 2013, not 2014, as full figures for the year ending at that date are not yet available.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

Posted in Articles | Leave a comment

Markets move on GPIF reports nobody bothers to check

This week said a lot about the priorities of Japan’s stock and bond markets — and the role of its media. Monday saw the FT’s Ben McLannahan exposing the return of ‘Nikkei previews’, through which the Japanese daily, in effect, unveils companies’ results days before they are officially announced.

Then came three important publications from the IMF. Unstash the Cash! Corporate Governance Reform in Japan, Is Japan’s Population Aging deflationary? and Japan’s Corporate Income Tax: Facts, issues and Reform Options.

They caused a ripple but it could not stand up to Thursday’s tide after Reuters’ Takaya Yamaguchi reported, in an ‘exclusive’, that the Government Pension Investment Fund ‘plans to boost the weighting of domestic stocks to more than 20 percent from the current 12 percent target, two people with knowledge of the allocation review said…

‘The GPIF will likely lower its weighting for Japanese Government Bonds to around 40 percent from the current 60 percent target, said the people who have been consulted on the fund’s plans.’

There so much wrong with this it is hard to know where to start.

Yet, according to the Nikkei, the stock market ‘Snapped 5-day losing streak on report on gov’t pension‘, with the eponymous 225 index rising by 75.58-points, or 0.48%. At the same time JGB prices fell on ‘Report on Japan pension fund portfolio change‘ allowing the yield on 10-year paper jump one basis point to 0.525%.

Reuters also noted that its coverage caused share prices to reverse earlier falls and that ‘some overseas investors [too] bought back in the light of the news’.

What news?

GPIF’s current reference allocation ['target' in Reuterspeak] to domestic stocks is not 12% it is 16.47%  and the actual allocation at the close of the financial year on 31 March was 15.88%.

GPIF asset allocation 31 March 2014Similarly, the Fund’s reference allocation to domestic bonds is not 60% but 47.25%  and its year-end allocation was 49.01% (a further 6.42% is in FILP paper but that has long been set on course to self destruct).

Who are these anonymous sources and who has consulted them? What do they stand to gain or lose if GPIF increases its target allocation by more then the expected 20%?

Overall this story looks like simply like an attempt to pump steam steam to a tale that has been running out of it.

Regular readers may remember ijapicap‘s 3 June 2013 story entitled ‘GPIF generated bliss bound to turn to post-coital blues’ (see archive) after the market rose following reports in many respectable media of ‘changes’ to the Fund’s asset allocation which were not changes at all.

At that time, as now, reporters simply wrote what they were told without checking on its veracity even though that could have been done in Japanese or English with a couple of clicks.

When stories quote market participants who are allowed to remain anonymous the potential for abuse is enormous.

With its ‘previews’ the Nikkei seems to be pursuing a bad practice by intent. Other outlets are taking the wrong direction through a basic lack of professionalism.

Much has also been sacrificed to the media’s obsession with GPIF – for example the question of why Japan Post Bank has still not made any announcement about it future asset allocation when it said, after an ijapicap report on 16 June (see archive ‘Abe attacks GPIF’s 6.8% in JGBs, silent on Japan Post’s 61.2%’), that an announcement could be expected soon.

© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.

This blog would not exist without the help and humour of Diane Stormont, 1959-2012

 

Posted in Articles | Leave a comment