Since the start of the year, China has been consistently expanding its QFII program, which allows foreign institutional investors to put money into the country’s capital markets, particularly equities. In this context, Japan’s Government Pension Investment Fund has announced its plans to invest in stock markets in emerging economies like China as soon as June this year.
The Government Pension Investment Fund, or GPIF, is Japan’s biggest public pension fund. It manages total assets of more than 100 trillion yen or 1.3 trillion US dollars on behalf of the Japanese government. As the number of senior citizens in the country is rapidly climbing, the holdings of the pension fund have started to decrease. According to authorities’ estimates, the fund needs a minimum annual profit growth rate of 4.2 percent to maintain operations. Analysts say the GPIF’s move to invest in emerging markets is mainly due to its need for capital.
Izuru Kato, chief economist with Tokyo Tahshi said, "About 70 percent of GPIF’s capital is invested in Japan’s treasury bond which has a low yield. The yield for the 10-year bond only stands at eight tenths of a percent."
Japan’s pension fund managers put their focus on long term investment. They also believe that the stock markets’ performance in China is associated with economic growth. They argue that the Chinese economy is sticking out among emerging markets, and that the QFII policy would ease some of the liquidity worries of Japanese institutional investors. This is why they are taking a bullish stance on the A share market .
Hiroshi Miyai, senior executive MD with NIKKO Financial Intelligence said, "Currently, stock markets in emerging countries are hitting the bottom, which means it is a good time to step in. Pension funds should focus on the market’s liquidity, and not put all eggs into one basket."
Analysts say more Japanese pension funds may follow GPIF’s move to invest in emerging markets. They estimate pension fund managers could invest as much as 1 trillion yen, or about 12 billion US dollars, in China’s A share market in the next five years.
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