One of the world's most conservative investors has found an unlikely new ally in one of its most flamboyant politicians: Donald Trump.
The unconventional president-elect's victory is helping Japan's giant pension fund in two important ways. First, it's sending stock markets surging, both at home and overseas, which is good news for the largely passive equity investor. Second, it's spurred a tumble in the yen, which increases the value of the Japanese manager's overseas investments. After the $1.2-trillion (U.S.) Government Pension Investment Fund reported its first gain in four quarters, analysts are betting the Trump factor means there's more good news to come.
"The Trump market will be a tailwind for Abenomics in the near term," said Kazuhiko Ogata, the Tokyo-based chief Japan economist at Credit Agricole SA. "GPIF will be the biggest beneficiary among Japanese investors."
While most analysts were concerned a Trump victory would hurt equities and strengthen the yen, the opposite has been the case. Japan's benchmark Topix index cruised into a bull market last week and is on course for its 12th day of gains. The 4.6-per-cent slump on Nov. 9 now seems a distant memory. The yen, meanwhile, is heading for its biggest monthly drop against the U.S. dollar since 2009.
GPIF posted a ¥2.4-trillion ($28.7-billion) investment gain in the three months ended Sept. 30, after more than ¥15-trillion in losses in the previous three quarters. Those losses wiped out all investment returns since the fund overhauled its strategy in 2014 by boosting shares and cutting debt. It held more than 40 per cent of assets in stocks, and almost 80 per cent of those investments were passive at the end of March.
Tokyo stocks are reaping double rewards from Mr. Trump, as the weaker yen boosts the earnings outlook for the nation's exporters. The Topix is the fourth-best performer since Nov. 9 in local-currency terms among 94 primary equity indexes tracked by Bloomberg.
But they're not the only ones. More than $640-billion (U.S.) has been added to the value of global stocks since Nov. 10, when many markets around the world started to climb on bets that Trump would unleash fiscal stimulus and spur inflation, which has boosted the U.S. dollar and weakened the yen. The S&P 500 index closed last Wednesday at a record high in New York.
Bonds have tumbled for the same reasons, with around $1.3-trillion wiped off the value of an index of global debt over the same period. Japan's benchmark 10-year sovereign yield touched a nine-month high of 0.045 per cent on Friday, surging from as low as minus 0.085 per cent on Nov. 9.
GPIF's return to profit is a welcome respite after critics at home lambasted it for taking on too much risk and putting the public's retirement savings in jeopardy.
The fund's purchases of stocks are a "gamble," opposition lawmaker Yuichiro Tamaki said in an interview in September, after an almost 20-per-cent drop in Japan's Topix index in the first half of the year was followed by a 7.3-per-cent one-day plunge after Britain's shock vote to leave the European Union. Prime Minister Shinzo Abe said that month that short-term losses aren't a problem for the country's pension finances.
"I'd imagine GPIF is feeling pretty much vindicated," said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. "It must be cautiously optimistic about Trump."
Still, the market moves after Mr. Trump's victory are preceding his policies, and some investors are questioning how long the benefits for Japan – and GPIF – can last. The U.S. president-elect already said he'll withdraw the U.S. from the Trans-Pacific Partnership trade pact on his first day in office. The TPP is seen as a key policy for Mr. Abe's government.
"It looks good for GPIF for now," said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo. But "whether the market can continue like this is debatable."