Japan fund managers trim stocks in December

Japanese fund managers boosted their portfolio of bonds and trimmed exposure to stocks in December as bond yields surged in the wake of Donald Trump's election victory last month, a Reuters survey showed. The survey of five Japan-based fund managers conducted between December 7 and 14 showed respondents on average wanted to allocate 56.2 percent of their portfolios to bonds, up from 54.8 percent in November.
Within bonds, fund managers increased US and euro zone debts, as their yields have soared on expectations of higher US fiscal spending and also a plan by the European Central Bank to reduce its bond buying next year. They notched up the weighting on North American bonds to 34.9 percent from 32.6 percent. The euro zone bonds allocation also rose to 17.8 percent from 14.8 percent.
US bond yields haven risen sharply, with the 10-year yield hitting a two-year high of 2.641 percent last week, as US President-elect Trump's plan to cut tax and increase spending is seen as boosting economic growth, inflation and budget deficits - all negative for bonds.
In Europe, long-dated bond yields were also driven up after the ECB said earlier this month it would reduce the pace of its bond buying from April. The 10-year German Bunds yield hit a 10-month high of 0.453 percent. In contrast, their weighting on Japanese bonds dropped to 34.6 percent from November's 36.2 percent, falling behind the US/Canada weightings for the first time since 2011.
Fund managers also more than halved their allocations to Asian bonds to 3.2 percent from 8.8 percent. While a rise in global bond yields put upward pressure on Japanese bond yields, any moves in their yields were contained by the Bank of Japan's yield curve control policy, under which it will keep the 10-year Japanese Government bonds yield around zero percent.
Higher US yields are also hurting many emerging market currencies as investors are expected to shift funds back to higher yielding US assets. Fund managers reduced overall stock holdings to 37.5 percent in December from 38.7 percent in November. They also reduced weightings on Japanese, European and emerging market shares but raised the weighting for North American shares sharply.