Discuss…
Do you think this type of allocation to your own country’s stock market is responsible from a fiduciary stand point?
So the way I am looking at this, in Japan, this is effectively fiscal risk, not just stock market risk. The government pension is invested in equities, but the Japanese government straight up buys stocks and corporate debt now to increase asset prices. So think about the scenarios: 1) if the government pushes the stock market up, they pay money now, but breakeven on pension liabilities, and 2) if the government does not push the stock market up, they don’t pay anything now, but will have fewer assets to meet future pension liabilities. So they are the same thing.
I guess Japanese stocks could go up by themselves, but this would be dependent on this “growth” phenomenon that used to exist in the country like 40 years ago.
To me Japan’s problem is not something that can be solved via monetary policies, it needs to change its immigration policy as it has been very xenophobic thus contributing to its aging problem.
The feedback cycle ohai described in his post sums up Japan as a whole.
i wouldnt judge on short term performance. japan’s market is super cheap historically and their earnings results are better. thier negative bonds are prolly f*cked so TINA. im all for it.
That doesn’t really make sense to me because if pushed up markets to support pensions, as soon as they began to sell those pension assets to meet obligations, all the positive impacts would unwind under technical forces and the air would be let out of those falsely inflated pension assets. Plus the third option would be for the government to buy foreign assets.
How is putting all your eggs in one basket a good idea to support your pensions… It literally has more than 60% of the assets in domestic investments.
if we can assume that at least a portion of the JGPIF will be everlasting, their reasoning to transition from fixed income to equities makes sense as it does for other pension funds and endowments. the earnings yield on japanese companies is 7.3% on average currently. that is much more attractive than negative. even if it creates uncertainty with their asset-liability matching equation, the 7.3% at least gives them a chance at matching with no shortfall, or even a surplus, at some point in the future.
i can’t speak much on the benefits of focusing on the japanese market. i assume it’s rooted out of japanese nationalism rather than economic soundness. i would think that holding other currencies and buying foreign securities would be advantageous to the country as a whole as it would devalue the JPY. i guess they figure the valuation discount relative to foreign securities is great enough that holding JPY and japanese equities is better, especially considering the central bank is likely to devalue the JPY into oblivion anyway and their liabilities are in JPY.
This assumes that they will be net sellers of the assets at any point, which is not true. I guess they could buy some foreign assets; I don’t know what the % is. However, the article is specifically referring to Japanese stock holdings and the large losses suffered by the pension funds from the domestic market.
Why wouldn’t they be net sellers at some point? But even if they weren’t, net sellers, the decreased demand as they sell could likely push down asset values.
As far as foreign assets, you said they have two options with respect to buying or not buying the equities and I’m pointing out that they very clearly have three.
domestic bias. prolly buy what you know. if they plan to devalue their currency. their market is prolly going to go up. yen is what at a 100? there was an article by mobius from templeton talkin about this just yesterday. that once yen hits 90. boj will put its money where its mouth is. and devalue the damn thing.
Also, Ohai, keep in mind these pension outflows will be occurring alongside broad based selling as retirees begin to spend out of their savings.
I think what I keep coming back to is that it makes no sense to continuously inflate markets now when the asset valuations of the pensions will not really be vital for another number of years.
New entrants to the pension system will replace the ones whose pensions start paying - unless they are phasing out pensions. And in any case, Japan’s government as a whole is clearly increasing net holdings through asset purchases.
Also, domestic bias, yes. How much of US pensions is invested in US assets?
Yeah but Japan has this demographic issue with their work force where new entrants < those leaving the work force (and taking pensions).
Also, they can’t continue to increase net holdings through asset purchases forever (and most of those are actually in real estate and hard assets). Which is why I would ask, why now when peak payouts are still a number of years off? Lastly, I didn’t say US pensions don’t invest similarly, just that Japan’s government has more options than the simplified two you’ve listed.
to be fair, u.s. equity market weight is 52% of global whereas japan is 8%. japan having a domestic bias means it is overweighting its 8% jurisidiction by several times. i’d assume most u.s. funds are fairly close to market weight on u.s. securities.
print the shortfall.
set a minimum spending for all pensioners
Seems like some countries have been encouraging these big “responsible” investors to get into the stock market, as a way to pump up valuations, and make everyone richer (and they just shrug at the risk).
I’m more okay with what China has done, they want more institutional investors in their retail investor dominated stock market, to bring stability and put a floor under prices. But Japan just wants to pump up a bubble with gov/pension buying, and nuke themselves into oblivion…in a subprime type event GPIF would take a $300B USD drawdown on their equity position alone.
GPIF targets allocations of 25 percent each for Japanese and overseas stocks, 35 percent for local bonds and 15 percent for foreign debt.
Government buys stocks to push up asset prices or Central Bank does?
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