UNDATED, Feb 28: Japanese fund managers cut their asset allocations for both shares and bonds slightly in recent weeks as they see a risk of a small correction after expectations of further monetary easing supported both asset classes.
A survey of 10 Japan-based fund managers, polled between Feb. 13 and 20, also showed they raised allocations to properties to a record high as Japanese Prime Minister Shinzo Abe pushes aggressive reflationary policies.
‘After the Lehman crisis, the S&P index has been capped at a price-book ratio of 2.3. We are already very close to that level so we could see a temporary correction,’ said Kenichi Kubo, senior fund manager at Tokio Marine Asset Management.
Indeed, the S&P index hit a five-year high during the survey period, on Feb. 19, but has since retreated on concerns about Italy’s political crisis and on speculation about an early end to the U.S. Federal Reserve’s bond buying programme.
Allocations to equities fell to 40.5 percent in February from 41.1 percent in January. That is slightly below last year’s average of 42.6 percent, however, as fund managers expect global growth to be moderate this year.
Bond allocations also ticked down to 51.7 percent from 52.2 percent last month, while the cash allocation rose slightly to 4.3 percent from 4.0 percent.
Despite hefty gains in global share prices so far this year, U.S. And Japanese bonds were also supported because of buying by their respective central banks.
The five-year Japanese government bond yield fell to a record low of 0.115 percent this week. The 10-year U.S. Bond yield had been capped below 2.05 percent for nearly a month, before it plunged to one-month low of 1.84 percent after inconclusive Italian elections rekindled concerns about the euro zone’s debt crisis.
The most notable change in allocations, however, was in properties, which rose to 1.9 percent, the highest level since the category was introduced in 2010, from 1.4 percent in January.
Japanese land prices have been falling for the last four years. But expectations of radical monetary easing by the Bank of Japan could make investors turn to property as a possible hedge against future inflation.
The Bank of Japan (BOJ) adopted a 2 percent inflation target last month, though most economists polled by Reuters believe it will not achieve that goal within the next five years.
Prime Minister Shinzo Abe has nominated Asian Development Bank President Haruhiko Kuroda, an advocate of more aggressive monetary easing, as the next BOJ governor to replace the current chief Masaaki Shirakawa.
Japanese fund managers also increased their weightings on domestic shares within their equity portfolios, to 34.6 percent, the highest level in five months, from 33.4 percent in January.
But it was off a record high of 41.4 percent hit in June, as fund managers are cautious due to a 30 percent rally for Japanese shares since mid-November, which has been driven by expectations of BOJ easing and the ensuing sharp fall in the yen.
‘While the prospects of a global economic recovery and Japan’s large-scale supplementary budget are likely to support Japanese share prices, their valuations are no longer cheap, so we expect them to move sideways,’ said a fund manager at a Japanese asset management firm, who declined to be identified due to company policy.
Fund managers also lifted allocations to Asian shares to a 10-month high of 12.6 percent from 12.5 percent last month but trimmed allocations to the United States and Europe.
Within bond portfolios, fund managers increased their weighting of U.S. And Canadian bonds to a 14-month high of 29.4 percent from 27.4 percent in January, while cutting their euro zone weighting to 16.8 percent from 18.5 percent.
They have shifted to investment-grade credit, both sovereign and corporate, from high yield bonds on rising concerns that aggressive monetary easing in the U.S., Japan and Europe is creating a bubble in ‘junk’ bond markets.
Fund managers slashed their weighting for high yield bonds to 1.7 percent from 3.6 percent, while increasing government bond weighting to 78.2 percent from 75.6 percent. (AGENCIES)
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