Japan fund managers increase stocks, reduce bonds in November

Japanese fund managers increased equity holdings and trimmed exposure to bonds in their model portfolios in November as domestic shares rose to the highest since January after Donald Trump was elected US president, a Reuters survey showed. The survey of five Japan-based fund managers conducted between November 17 and November 22 showed respondents on average wanted to allocate 38.7 percent of their portfolios to equities, up from 37.6 percent in October.
Within equities, the respondents increased their exposure to Japanese stocks to 48.7 percent in November from 48.1 percent in October. "Domestic equities are expected to remain on a firm footing for the rest of the year thanks to a weakening yen improving corporate earnings prospects and hopes for the next US administration," said Yuichi Kodama, chief economist at Meiji Yasuda Insurance.
The Nikkei rose to a 10-1/2-month high last week with the yen sliding over 6 percent against the dollar since Trump won the presidential election. Survey respondents reduced their holdings of North American equities as Trump's victory raised hopes for reflationary policies that could prompt the Federal Reserve to hike interest rates more frequently next year than initially anticipated.
The fund managers cut their exposure to North American stocks to 22.9 percent in November from 25.9 percent in October. They reduced overall bond holdings in November to 54.8 percent from 56.2 percent in October after the US election outcome hit global debt markets, with US Treasuries' prices tumbling and yields soaring on the prospect of major debt-funded fiscal spending and consequent inflation.
The bulk of the cut in allocations was in Japanese bonds, which had seen the benchmark 10-year yield rise above zero this month to a 9-month high of 0.045 percent. Survey respondents decreased their Japanese debt exposure to 36.2 percent in November from 47.7 percent in October.
The lure of relatively high US yields - the 10-year Treasury note rose to a 16-month high above 2.4 percent last week - had fund managers increase their holdings of North American bonds to 32.6 percent in November from 28.4 percent in October. They also nudged up their exposure to euro zone bonds to 14.8 percent from 13.4 percent and UK debt to 5.8 percent from 3.8 percent. The 10-year German bund yield, which was below zero in October, stood around 0.200 percent and the equivalent British gilt yielded 1.400 percent, having risen about 15 basis points in November.