Japanese global funds add stocks, cut bonds in July

[TOKYO] Japanese fund managers increased their holdings of stocks in model portfolios in July on expectation of a moderate earnings recovery while they cut their allocations to bonds to the lowest level in almost a year, a Reuters survey showed on Friday.

A survey of seven Japanese-based fund managers, conducted between July 21 and 24, found respondents on average wanted to allocate 44.8 per cent to stocks, matching a nine-month high hit in May, and up from 43.4 per cent in June.

Their allocation to bonds fell to 49.1 per cent of their funds, from 51.3 per cent in June and the lowest level since August, as they brace for US interest rate hikes later this year.

"On the whole, we think market conditions are positive for stocks. But we are overweight on stocks only mildly given low (earnings) growth and their not-so-cheap valuations," said a fund manager at a Japanese asset management firm, who declined to be identified due to company policy.

Sharp falls in mainland Chinese stocks since June have so far not dented their appetite for global stocks.

Within stocks, fund managers increased Japanese equities to 48.8 per cent from 36.0 per cent in June, as they see Japanese markets supported by buying from the Bank of Japan and other public pension funds.

They also increased ex-Japan Asian stock weightings to 5.8 per cent from 5.0 per cent in June.

The fund managers are turning cautious to bonds as the US Federal Reserve has signalled it will start raising interest rates later in the year - for the first time in more than a decade.

They are reducing exposure to US bonds with their weightings on US and Canadian bonds falling to 27.8 per cent from 31.5 per cent in June.

On the other hand, they increased weightings on Japanese bonds to 45.7 per cent, the highest level in about three years, from 35.3 per cent, as the Bank of Japan is nowhere near ending its stimulus with inflation still way below its target.

"On the whole, Japanese bond yields will stay low considering the domestic economy is stagnating and the BOJ will likely keep buying bonds," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.

REUTERS