Abe to press pension funds to invest more in Japanese stocks Shinzo Abe will call on Japan's giant pension funds to lift their allocations to domestic stocks and to take a more active approach to investment, as the prime minister seeks ways to sustain new-found interest in the world's second-biggest equity market. As part of a new national growth strategy to be outlined at the end of next week, the Government Pension Investment Fund and other big institutional investors will be urged to lift automatic caps on their equity holdings while exercising their voting rights more frequently, according to a senior government official. IN Asia-Pacific Equities In theory, such moves could support prices by tipping the balance of supply and demand in the equity market, given the sheer size of the institutions concerned. Total assets at the GPIF, for example, stood at Y112tn ($1.1tn) at the end of December - about the same size as the economies of Mexico or South Korea - with a 60 per cent weighting to domestic bonds. At the same time, the extra scrutiny from powerful domestic investors could encourage companies to pay more attention to returns to shareholders. Forecast ROEs for the biggest companies on the Topix index this year are about 9 per cent, well below the 15 to 20 per cent average in other mature economies. "There's an urgent need for institutions to change their allocations and not to be a sleeping shareholder," the government official said. This year's rally in stocks has helped to carry Mr Abe to the brink of victory in Japan's upper-house elections next month, thus cementing his hold on power for the next three years. Despite a recent dip, the Topix remains one of the best-performing benchmarks in the world, up 44 per cent over the past six months, buoyed by steady inflows from foreign investors and a revival of trading activity among domestic retail investors. However, while many investors are convinced that Mr Abe's determination to revive Japan through stimulus and structural reform will keep pushing the market higher, others are less sure. A public commitment to support stocks from the GPIF "would be a reason for overseas investors to step up their buying, since we are consistently asked why Japanese investors, and pension funds in particular, have not been doing so," said Masatoshi Kikuchi, pan-Asian equity strategist at Mizuho Securities in Tokyo. The GPIF was established in April 2001 to manage funds in Japan's public pension system. Its current base portfolio, set in 2006, is allocated 67 per cent to Japanese bonds - with a tolerance of 8 per cent either side, due to market moves - 11 per cent to Japanese stocks, 9 per cent to foreign stocks, 8 per cent to foreign bonds and 5 per cent to short-term assets. Raising the assumption for long-term inflation from 1 per cent to 2 per cent - in line with Mr Abe's policy - would lift the GPIF's target return to 4.2 per cent. Achieving that target return could require lifting the weighting of domestic stocks in the portfolio to a baseline of 17 per cent, according to calculations by Naoki Kamiyama, chief strategist at Bank of America Merrill Lynch in Tokyo. The government plans to reshape investment strategies for the roughly Y200tn in assets held by 190 public pension funds, aiming to complete the shifts by the end of the fiscal year ending in March 2016. Mr Abe's growth programme, dubbed "Abenomics," depends on investors across Japan rebalancing bond-heavy portfolios towards riskier assets, while allowing the central bank to mop up the debt they offload.