The huge domestic equity buying programme from the Japanese Government Pension Investment Fund (GPIF) has led to a shift in sentiment towards Japanese equities, according to Cerno Capital.
Last year the $1.4trn pension fund announced it was adjusting its asset allocation to significantly increase its weighting towards domestic Japanese equities.
Between the end of October and the end of December 2014, the GPIF increased its Japan equity weighting from 12 per cent to 20 per cent, aiming for a target of 25 per cent in domestic stocks.
Since the GPIF started its equity buying programme, the Japanese market has risen by 18 per cent in local currency terms, and while the pension fund itself did not have the clout to cause that move just by itself, Cerno Capital has argued its actions have led to a sentiment shift.
Julia Scheufler, investment analyst at Cerno Capital, said the position of the GPIF as a “marginal buyer” of Japanese stocks has led other domestic investors to increase their weightings to domestic equities.
The firm’s analysis found a marked rise in trading volumes in the Japanese market from July 2014, as news of GPIF’s intentions filtered through to investors following the initial announcement of its new asset allocation targets in April 2014.
Ms Scheufler said: “We conclude that while the monetary value of GPIF allocation shifts are not large enough to contribute to an increase in volume outright, the pick-up since July 2014 appears to have turned the overriding sentiment of market participants positive again – influenced both by the public sector’s intention of refocusing portfolios to equities and by further QE.
“We expect this net new buying trend to continue,” added Ms Scheufler. “In Japan, once a consensus is formed, it stays formed.”
