World’s largest pension fund is 2018 rout’s latest victim

The world’s largest pension fund could possibly have incurred an increasing loss following a global equity rout last quarter pummelled a good point class that made-up most of the investments.

Total assets at Japan’s Government Pension Investment Fund often have dropped to 155.6 trillion yen ($1.43 trillion) since get rid of December, according to calculations by Yohei Iwao, executive director in the institutional equities division at Morgan Stanley MUFG Securities in Tokyo. That will be an archive decline of around 14 trillion yen from your end of September. Results are due at 3:30 p.m. in Tokyo on Friday.

While stocks helped the GPIF generate returns to the previous two fiscal years, December’s global rout underscored the potential health risks facing the fund simply because it revamped strategy in 2014 to obtain stocks and pare domestic bonds. The GPIF may have little choice but to invest in equities as fixed-income yields, specially those of Japanese government debt, are far too low, said Naoki Fujiwara, chief fund manager at Shinkin Asset Management in Tokyo.

“It constitutes a sense to the GPIF to keep some risk assets during this environment because yields are low globally and bond investments don’t give good returns,” Fujiwara said. “Yet coming from a pensioner’s point of view, it requires a lot risk on its investments.”

More than $10 trillion in equity value was murdered through the global markets last quarter for ongoing trade spat involving the US and China raised concern more than a slowdown in growth.

The Topix index plunged 18% from the October-December period, the main quarterly decline since 2008, as the S&P 500 Index dropped 14%, probably the most since 2011. Japan’s currency strengthened 3.7% against the dollar inside the quarter.

The GPIF probably experienced a loss in 7.7 trillion yen in domestic stocks and a decline of 6.6 trillion yen in overseas shares in the period, the Nikkei newspaper reported on Jan. 16, citing an analyst estimate by Nomura Securities Co.

Shingo Ide, the main equity strategist at NLI Research Institute in Tokyo, explains that the GPIF’s long-term performance is far more important than quarterly moves. Stock investments helped the fund generate returns for eight of history nine quarters, pushing assets to record highs.

“There’s no need to be pessimistic because the GPIF would incur losses on its investments over a quarterly basis,” Ide said. “For pension funds, it’s more useful to focus on where did they secure long-term returns and not their quarterly performance.”

Still, with approximately 50 % of its assets in domestic and foreign equities, the GPIF’s performance can be in danger of declining as concerns for the US-China trade war as well as the UK’s departure on the European improve the overall probability of some sort of economic slowdown, according to Hidenori Suezawa, an analyst at SMBC Nikko Securities in Tokyo.

“Trade frictions involving the US and China were not fully solved yet and there’s a possibility that your Brexit problem may be prolonged,” Suezawa said. “We may not be optimistic around the investment performance toward March.”

? 2019 Bloomberg L.P

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