Japanese brokers invest to catch up on lost time and business

Japanese stock brokers’ research and advisory services won more votes from financial intermediaries than the Tokyo units of their overseas-headquartered competitors in a survey undertaken by Greenwich Associates and just published by the Boston-based firm.

Nomura Securities topped the poll followed by Daiwa Securities and Mizuho Securities.

An accompanying report notes that brokers’ positioning in research and advisory activities is “a key determinant of [their] overall performance because institutions allocate 60% of their Japanese equity commission payments to compensate the sell side” for providing such inputs.

This is reflected in the part of the poll designed to assess brokers’ Japanese equity trading services which again put domestic firms ahead of those from overseas — with Nomura Securities, Daiwa Securities and Mizuho Securities once more in the lead.

This is the second year in succession that local brokers have seen their popularity rise vis-à-vis foreign firms. This time around overseas and offshore clients provided the largest part of the surge in support, thus following the trend set a year earlier by domestic customers.

Greewich Jap brokers electron

Nonetheless Greenwich notes that “foreign brokers have been able to better defend their market share in trading for one main reason: In one of the world’s most electronic marketplaces, foreign firms still have the upper hand in e-trading competition.

“As the accompanying chart shows, only 41% of institutional trading volume in Japanese equities is executed via additional ‘high-touch’ single-stock trades with broker sales traders. The majority of trading volume is executed electronically via algorithmic trading strategies, smart-order routing, crossing networks, or portfolio trades.

“In the competition for trading volume, global brokers like UBS garner a considerable advantage from their well-established e-trading platforms,” says John Feng, one of three Greenwich consultants who worked on the survey.

The improving perception of Japanese firms’ capabilities seems to be solidly based with timing playing “an important role in this shift in the competitive landscape as several domestic brokers made significant investment in equities at the same time that a number of foreign brokers cut back.

“After an extended period of weak market performance and anemic flows in institutional trading volume and commission revenues, global banks had started to scale back their Japanese equity operations by 2012–2013.

“Meanwhile, several large Japanese banks were placing big bets by making sizable investments in their own equity research and trading platforms.

“At the same time the new Prime Minister Shino [sic] Abe launched the economic stimulus program that has come to be known as ‘Abenomics’, which then sparked a resurgence in the Japanese stock market.”

That Japanese financial conglomerates turned their minds to investing in their operations when they did may have been the result of 15+ years of repeated rounds consolidation among them coming to end – and so giving management  the time to focus on the future.

The same pattern has already proved true in asset management where Japanese big-hitters overtook their formerly all-conquering foreign counterparts in 2009.

The Greenwich survey was carried out among 163 equity portfolio managers, 135 equity traders and 118 equity derivatives users during July-September 2014.

© 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

Assets in discretionary accounts up nearly 6% in 2nd quarter

The value of domestic equities in Japanese fund managers’ discretionary portfolios rose just 7.63% in the June-September quarter when the Topix all-share index climbed 10.31% and the Nikkei 225 6.67%.

By contrast the value of firms’ US stock holdings rose quarter-on-quarter by 11.49% to 14,460.1bn yen and that of US bonds by 10.48% to 18,460.1bn yen. These numbers were, however boosted by a 7.63% drop in yen:US$ exchange rate during the term.

The same movements would also have impacted the number for holdings of Asian stocks which jumped an impressive 29.22%, though from a low base, to reach 2,497.8bn yen.

In yen terms that was a quarter-on-quarter rise of 564.9bn yen, making a jump for the first nine months of the calendar year of 1,092.1bn yen – roughly consistent with the net figure of 1.82tr yen in the Bloomberg story of 27 November below (Japanese investors pour 1.82tr into Asia stocks and bonds) which presumably includes outflows via mutual funds.

The figures come from returns submitted to the Japan Investment Advisors Association by its members and do not include amounts which retirement funds manage inhouse. They thus exclude GPIF’s 26 trillion yen passive domestic bonds portfolio, and the 22tr+ yen in the hands of Mitsubishi UFJ Trust & Banking and Resona Bank which are not JIAA members. Money in pooled accounts at trust banks and life insurers is also excluded.

The Association’s numbers break down total amounts under management by type and location of investment but do not disaggregate the foreign and domestic subtotals. It is nonetheless fair to assume that money managed for overseas clients is invested in Japan while that from local sources is directed to markets both at home and abroad.

What the JIAA classifies as ‘short-term’ investments in Europe also saw a big increase in percentage terms but even the 47 .63% leap put only 972.9bn yen in this category.

By the close of the term Japanese stocks accounted for 22.75% of these portfolios compared with 22.34% previously.

The position looks set to change after the giant Government Pension Investment Fund announced at the end of October that it will increase its local equities allocation from 12% to 25% — a move that will necessarily impact total numbers given GPIF’s outsize role in the business.

Total assets in the June-September quarter rose by 5.71% to 182,262.4 billion of which 27,897.8bn yen was invested for foreign clients, an increase of 8.49% on the previous term, and 151,252.2bn yen for domestic customers, up 5.23%.

Japanese pension funds, at 112,247.4bn yen, are by far the largest local clients with corporate retirement schemes accounting for 27,116.0bn yen, up 2.08% on end-June, and the Government Pension Investment Fund plus some public sector plans for 85,131,3bn yen, a quarter-on-quarter rise of 6.72%.

The numbers 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

Post Bank clout can support Tokyo stocks for years to come

Japan Post v SMBC's investment securitiesAt the close of the financial year on 31 March 2014 Japan Post Bank had an investment-securities portfolio worth 166.06tr yen of which 126.39 trillion yen, or 76.11%, was in Japan Government Bonds and just 935 million yen in local stocks.

Other banks’ positions were less skewed towards debt with, for example, Sumitomo Mitsui Banking Corp and its domestic subsidiaries holding 59.07%, or 14.24tr yen, of a 24.11tr yen portfolio in JGBs and 3.43tr yen, or 14.24%, in Japanese equities.

Were Japan Post Bank to adopt an asset allocation similar to SMBC the stock market would see an inflow of an almost unbelievable 23.2tr yen.

Yet Post Bank has at least two reasons for making such a move following the announcement on Christmas Day that it, as well as Japan Post Insurance and Japan Post Holdings (which has stakes in the other two and owns the postal delivery system), will be publicly listed sometime between September and August 2015.

First, by aligning itself with the practices of other major banks it would help institutional investors value its shares;

Second, by pouring such a flood of funds into the stock market it would ensure substantial price rises for all stocks, including banks, thus boosting its own likely offer price.

Post Insurance had JGBs to shed too

Sister company Japan Post Insurance is in a somewhat similar position but most of its peers are either privately held (mainly as mutuals) or are part of financial conglomerates. Only Dai-ichi Life Insurance is listed on the Tokyo Stock Exchange in its own right.

As the 24 November posting (see archive) shows, if Post Insurance were to normalise its investment holdings relative to those of its peers ahead of listing it would put 6.3tr yen into stocks, producing a smaller rise than Post Bank but one which is  significant nonetheless.

Neither institution is likely to its re-jig its positions all at once and any indication that they would in future commit a certain percentage of their holdings to stocks – as politicians have obliged the Government Pension Investment Fund to do — would be as unhealthy for equities as it has been for the national debt market.*

The idea that such huge amounts of money will be free to enter the stock market will nonetheless lend ongoing support to equities — especially since it seems likely that the government will remain Post Bank’s dominant shareholder for years to come.

Support would also come from a mooted extension of eligibility to join defined-contribution pension schemes which currently have only around 183,000 subscribers. This would receive a massive boost if a proposal to include full-time homemakers is accepted.

Mrs Watanabe makes the difference

These same housewives could well form the core of demand for all three types of shares in Japan Post — which is both well known and well liked throughout the country.

Many Mrs Watanabes are active mutual fund investors and Nomura Securities has the ability to reach almost all of them through its formidable telephone sales operation — which may be why it was as one of four global co-ordinators of the offering. The others are Goldman Sachs, JP Morgan and Mitsubishi UFJ Morgan Stanley Securities.

Retail investors will also play their part in demand via Nippon Individual Savings Accounts (NISAs) which were introduced in June and the three offerings could become Japan’s equivalent of the UK’s 1984 listing of British Telecom (also formerly part of a national post office) which was aimed at creating a shareholder culture among the men and women in the street.

Long-term institutional investors may, though, need more encouragement to bid for the shares than Japan Post having recognition name among the country’s 126 million people.

The population is falling, cutting levels of demand for everything from insurance to cars. Japan Post’s mailing operations run at a loss and its banking and insurance businesses are constrained in the products they can offer – no mortgages, for example — to prevent them from competing with entities which had to build their businesses without access to its once privileged position.

* Three days before Japan Post’s announcement the Ministry of Finance published the English-language version of the Fiscal Investment and Loan Programme’s FY2014 annual report which shows the extent to which the government relied on postal savings and insurance products plus people’s pensions contributions to supposedly prime the economic pump by building its now famous roads to nowhere.

© 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

Report states the obvious on two-month-old GPIF reforms

Nomura Research Institute and Boston-based Cerulli Associates have jointly a published a report on the Government Pension Investment Fund which notes that GPIF will be “unshackled” by recent moves to reform it.  Perhaps the report has more substance than the news release suggests.

Posted in Articles | Leave a comment

Foreign securities hit record 19.2% of life companies’ portfolios

The foreign securities component of Japanese life insurance company portfolios continued its growth in the second quarter of the 2014/15 financial year when it climbed 7.87% to make for a first half increase of 12.03% and year-on-year expansion of 20.38%, numbers from the industry’s trade body show.

At 19.2% of total holdings of 358.582 billion yen, overseas investments are now higher than their previous peak at 31 March 2005 when they accounted for 19.1% of 191,523bn yen. Text continues below table.

Japan life insurance co holdingsThe figures need to be read in conjunction with movements in the yen:US$ exchange rate which weakened by almost 7.63% over the second quarter making for a year-on-year decline of 11.53%.

In March 2005 the US$:yen rate was 107.205, not unlike 30 September’s 109.667 yen.

The Life Insurance Association of Japan has 43 members and since 2008 has included the government-owned Japan Post Insurance which is expected to listed on the Tokyo Stock Exchange next year.

As previously reported (see archive 24 November 2014 Japan Post likely to pout 6.3tr yen into stock market) the postal giant had only 1 billion yen of its 87,089bn yen holdings in overseas instruments at 31 March 2014. As it does not publish quarterly reports the amount it may have moved offshore since then is unknown.

If the company seeks to bring its portfolio into line with the rest of the sector before its privatisation then over 15 trillion yen could flow into foreign investments and further impact the exchange rate. The funds to do this would necessarily come from the 78% of its portfolio which the company keeps in JGBs — a 68tr yen stash on the future of which the government has been curiously quiet.

© 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

Making the most of 11,000 captive clients

Last year Sumitomo Mitsui Trust Bank handled all the custody work, the bulk of the administration and about 75% of the asset management business of 1,278 corporate pension funds with more than 500 members each.  It is unlikely ever to lose these customers but it is equally unlikely that their ranks will grow.

Resona Bank is in the same happy position with 1,148 retirement-scheme clients, as is Mitsubishi UFJ Trust & Banking with 885 and Mizuho Trust & Banking with 434.

Like life insurance companies – which service firms with smaller payrolls – the trust banks  are sokanji: holders of the serei shitei hojin designation to whom companies turn when first establishing a pension fund.sokanji table

Both client and service provider expect this relationship to continue in perpetuity and for the relationship to expand as additional functions, such as securities lending, develop over time.

This is the sole aspect of Japan’s corporate pensions management business never to have been deregulated and it is unlikely ever to be so. In future the pot of gold will shrink but it will take decades to disappear, making it a banking product of rare longevity.

In recent years the death rate among fragile company pension plans has been huge. In 2012 the around 70,000 so-called Tax-Qualified Plans known to the Ministry of Finance — but under little supervision — were given the option of closing, joining Serama (see previous posting), or converting to a type of defined-benefit or defined-contribution scheme supervised by the Ministry of Health & Welfare by 31 March 2013.  Today a little over 13,000 former TQPs live on as DB plans.

At the same time Employee Pension Funds (EPFs), already regulated by the Ministry of Health & Welfare, were allowed to convert to a structure which no longer includes responsibility for investing firms’ contributions to the state-run Employee Pension Insurance. There are now 700+ such conversions while 500 EPFs remain as they were.

Corporate restructuring has also reduced the number of funds, though not the asset levels in the system. As companies have merged with others in the same group, or with outsiders, so have their retirement schemes.

This upheaval has come to an end without demand for sokanji services shrinking to anything like the same extent as fund numbers but very few new companies are now setting up defined-benefit plans.

As a result, the total number of clients fell from 11,720 at the year ending 31 March 2012 to 11,521 two years later, according to the latest annual survey by Nenkin Joho, a fortnightly newsletter published by an actuarial consulting subsidiary of the Nikkei newspaper.

© 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 | Tagged , , , , , | Leave a comment

Japanese investors pour 1.82tr yen into Asia stocks & bonds

Bloomberg reports that:

‘Japanese investors are buying Asian assets like never before as Prime Minister Shinzo Abe’s policies make the yen a lucrative means to fund bets on regional growth.

‘A net 1.82 trillion yen ($15.4 billion) flowed into stocks and bonds in the rest of Asia in the first nine months of 2014, 76 percent more than the previous record in 2007, data from Japan’s Ministry of Finance show. Borrowing in yen to invest in the 10 currencies that make up the Bloomberg-JPMorgan Asia Dollar Index returned an annualized 13 percent this year through yesterday. That beat so-called carry trades funded in euros and dollars, which gained 11 percent and 0.3 percent, respectively.

‘Abe’s unprecedented stimulus to fuel inflation has boosted Asian markets, providing them with a buffer against potential outflows as the U.S. prepares to raise borrowing costs next year. Inflows to the world’s fastest-growing region are also being bolstered by the People’s Bank of China’s Nov. 21 decision to cut interest rates for the first time since 2012, and as the European Central Bank considers further monetary easing.

‘“Japanese investors caught the same grab-for-yield bug that investors everywhere caught,” Tim Condon, head of Asian research at ING Groep NV in Singapore, said in a Nov. 24 interview. “With the PBOC joining the Bank of Japan in increasing accommodation, and the ECB expected to join, the grab for yield looks set to persist in 2015.”’

US$34 billion to go

. . .  ‘Nomura Holdings Inc. estimates Japanese investors will pump $34 billion into Asian stocks and bonds over the next two years provided the nation’s pension funds meet their investment targets. Hong Kong, South Korea and India will be the top destinations in the region, Nomura said in a Nov. 24 report.

“The region’s economies continue to perform well and generally exhibit strong economic fundamentals,” Thiam Hee Ng, a senior economist at the Asian Development Bank in Manila, said in a Nov. 20 interview. “Once Japanese investors get more familiar and comfortable with other markets, they will increasingly see Asia as a useful diversification play.”’

For the rest of this insightful analysis by Kyoungwha Kim and Masaki Kondo visit here.

Posted in Articles | Leave a comment

End September GPIF equities holdings still well below target

When the second quarter of the Japanese financial year closed on 30 September the Government Pension Investment Fund’s allocation to domestic stocks was just 18.23%. — well below the new target allocation of 25% of a portfolio which has now swelled to a record 130.88 trillion yen.

GPIF asset alloc at 30 Sept 2014Investment return for the three months was 2.87% with the performance of asset managers handling three of GPIF’s four investment segments coming in below their benchmarks.

Holdings of domestic bonds fell from 53.36% to 49.61% of the total compared with a target of 35%. They should soon dip below 45% as the 5% in zaito bonds, issued by the Fiscal Investment and Loan Programme (FILP), is falling steadily as they are allowed to lapse rather than rolled over.

Investments in domestic debt are passively managed inhouse and met their 0.63% benchmark.

GPIF assets March & June 2014 pie chartsThe most notable rise was in foreign stocks which accounted for 17.41% of the portfolio compared with 15.98% at the end of June and a target of 25%. The return on this segment was 5.73%, 0.90% below the 5.64% benchmark.

The performance in international bonds — which accounted for 12.14% against 11.06% at the close of the previous term and a target of 15% — came closer to its yardstick which it underperformed by 0.01% for a respectable 5.51% return.

The results are here in full.

 © 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 likely to pour 6.3 trillion yen into stock market

The drama of a general election plus the accompanying stimulus package and an 18-month delay in implementing the consumption tax rise are pushing GPIF’s asset re-allocation away from centre stage and lining up another government institution — Japan Post Group —  to take its turn in the spotlight. This will probably happen twice.

Japan Post Insurance currently holds 78% of its 90.5 trillion yen portfolio in ‘corporate and government bonds’ with the bulk in JGBs. At 1 billion yen its allocation to Japanese stocks is so small that it accounts in percentage terms for nil. Foreign securities account for 1.4% and are thought to contain few, if any, stocks.

This is vastly more skewed away from risk capital than even GPIF’s before the Fund’s reform when 17.3% of its 67.9tr yen holdings were in Japanese equities and 15.9% in foreign stocks.Japan Post Insurance holdings

The Fund was contin-uously urged to change that position and the absence of any pressure on Japan Post Insurance to do ditto suggests that government is keeping this up a sleeve from which it will be theatrically produced if interest in the stock market starts to sag.

Just how much might be directed out of JGBs and into equities can be deduced from how Japan’s other 42 life companies divide up their portfolios.

The Life Insurance Association of Japan publishes numbers for aggregate holdings of its members using figures supplied by them. Japan Post Insurance is an LIAJ member but can be removed from the totals by deducting the figures published in its annual report.

This exercise shows that industry-wide portfolios net of the postal Japan life insurance co holdingsgiant were invested at 31 March as 46.4% in corporate and government bonds, 23.1% in foreign securities, 6.9% in domestic stocks.

So if Japan Post Insurance follows the pattern of its peers it will be putting at least 6.3tr yen into the local stock market and it may be more.

With the yen sinking faster than government would like the company may be dissuaded from moving over 20% of its holdings abroad and prompted to put money which would have taken that route into local stocks instead.

It looks as though 2015 will be a high profile year for Japan Post Group in other ways too.

Last week saw 15 companies approved for listing on the Tokyo Stocks Exchange and the proposed listing of the Group next year will allow government to beat the drum for local equities whenever interest looks like turning to other arenas and different dramas.

Please note that the numbers in the text and tables of this posting do not include the assets of companies’ foreign or  domestic subsidiaries.

© 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

Dai-Ichi set to overtake Nippon Life in premium income

When the mighty Nippon Life’s premium income for the first-half of the 2014 year, which closed on 30 September, is made known on 28 November it will prove less than Dai-Ichi Life’s already announced 2.59 trillion yen, according to the Yomiuri Shimbun.

If the prediction proves true Dai-Ichi could supplant Nippon as Japan’s third largest life co on the measure, ranking after Zenkyoren and Japan Post Insurance, and it could be on track to be around 11th in the world, compared with today’s 17th.

Dai-ichi, which translates as Number One, is the only Japanese firm in the sector to be publicly quoted in its own right as its competitors are either parts of large financial conglomerates or mutuals.

In 2010 the company bought Tower Australia Group for US$1.2 billion and in June this year it acquired Protective Life of the US for US$5.7bn. It is not clear if Yomiuri’s forecast is for premium income from Japan alone or includes that from abroad.

© 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