Japan funds to trim stock exposure

TOKYO: Japanese investors are trimming the weight of stocks in their fund portfolios on concerns that a rise in US long-term interest rates following China’s currency revaluation could weigh on global stock markets, a Reuters survey showed.

The 12 institutional investors, asked about their latest asset allocation plans, said they were increasing foreign bond holdings because higher interest rates abroad are making bonds there look more attractive.

Overnight interest rates stand at virtually zero in Japan compared with 3.25 percent in the United States and 2.0 percent in the euro zone. The monthly survey showed investors’ allocations for global stocks fell to 52.4 percent, down from 54.0 percent in June and the lowest since June 2003.

The allocation for global bonds climbed to 43.4 percent from the previous month’s 41.9 percent, the highest since May 2003. Cash positions edged up to 4.2 percent from 4.1 percent.

“US interest rates have risen on worries that the Chinese government might cut its purchase of US Treasury bonds following its currency revaluation,” said Yasuhiro Miyata, a senior portfolio manager at DLIBJ Asset Management.

“If US long-term rates continue to go up on that sort of factor, we may have to review our forecast scenario for stable US interest rates and firmer stock markets in both Japan and overseas.”

The weighting of Japanese stocks declined to 20.7 percent of total equity exposure from 21.8 percent, although most fund managers said Japan’s Nikkei share average was likely to trade in a higher range over the coming month. Some fund managers said weak earnings at electronics conglomerates and domestic political uncertainty due to controversial plans to reform the postal system could dampen the Tokyo stock market’s sentiment.

The weighting of stocks in Asia excluding Japan fell to 3.3 percent from 3.5 percent. One manager at an investment trust company said Asian stock markets may end their rally following the yuan revaluation.

US and European bonds preferred: Investors said they were shifting out of global stocks and into North American and European bonds. The weighting of North American bonds rose to 36.2 percent of total bond exposure from the previous month’s 35.4 percent. The weighting of British bonds rose 8.2 percent from 7.6 percent while that of euro zone bonds inched up to 34.9 percent from 34.8 percent.

With long-term US interest rates above 4 percent, US bonds appear particularly attractive to investors in Japan, where they have limited options for high-yield investments with the central bank maintaining an ultra-easy monetary policy.

Respondents to the survey said they expected the yen’s gains following the yuan’s revaluation to be temporary. Nearly all of the 12 investors revised down their outlooks for the yen’s trading range against the dollar for the next month to 105-116 yen. The allocation of Japanese bonds fell to 17.0 percent from 18.6 percent. reuters

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