Japan fund managers raise Asian, U.S. stock weightings after Fed delays tapering

TOKYO Mon Sep 30, 2013 9:11am IST

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TOKYO (Reuters) - Japanese fund managers increased their assets allocated to equities in Asia and U.S. markets in September on the prospect of ample liquidity after the U.S. Federal Reserve decided to stick with its easy money policy, a Reuters poll showed.

A survey of eight Japan-based fund managers, polled between Sept 17 and 25, also found the managers cut their assets allocated to bonds to a 16-month low, a sign that investors took the Fed's decision to continue with its stimulus as a green light to buy riskier assets.

The managers raised their overall allocation of assets to shares to 44.0 percent, a 16-month high, from 43.0 percent in August, and lifted their weighting for Asian shares to 7.4 percent from 5.6 percent.

They reduced their bond allocation to 48.9 percent in September -- the lowest since May 2012 -- from 50.4 percent in the previous month.

"Shares of companies with strong results will continue to attract buying, and we can expect higher ranges in global indexes, although upsides would be moderate," said a fund manager at a Japanese asset management firm, who declined to be identified because of company policy.

"We expect bond yields to be on the high side (as the start of the Fed's tapering remains in sight). But the bond market is likely to stay calm as the market expects the Fed to take a mild approach to slow its bond buying program."

The Fed said last week it would await evidence of stronger economic growth before adjusting the pace of its purchases.

Markets had widely expected the Fed to reduce its $85-billion-per-month asset-buying scheme this month by at least $10 billion after comments by Fed chairman Bernanke in May and June suggested a reduction in bond purchases was likely late this year.

Fears of Fed tapering prompted capital outflows from many emerging markets in recent months, as the prospect of higher yields in the developed world attracted foreign capital.

But after the Fed's surprise announcement not to taper stimulus for now, Asian equities as measured by the MSCI Asia-Pacific ex-Japan index .MIAPJ0000PUS jumped 2.3 percent to a four-month peak.

Within their equity portfolios, the managers also raised their weighting for U.S. and Canadian shares to 34.1 percent from 33.1 percent, while cutting the weighting for European shares to 8.8 percent from 11.5 percent.

The weighting for Japanese shares remained the same at 37.0 percent this month.

The Nikkei .N225 has surged more than 40 percent so far this year as policymakers push ahead with a mix of monetary, fiscal and structural reform measures designed to lift Japan's economy from its 15-year-old deflationary funk.

CUTTING JAPAN BONDS

The weighting for Japan within bond portfolios dropped to 35.9 percent from 36.5 percent in August as managers expect the Bank of Japan to keep stimulus in place as inflation is unlikely to meet the central bank's target.

"Although Japan's consumer price index is showing a constant rise, gains are limited to certain sectors on the back of rising import costs amid the weak yen," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance. "There is no sign yet that prices of goods are rising broadly."

Japan's core consumer price index in August rose 0.8 percent from a year earlier, hitting a fresh five-year high. But much of the gain came from high energy prices and a weaker yen inflating the cost of imports, which could cause some concern about a negative impact on household spending.

The benchmark 10-year JGB yield fell to 4 1/2-month low of 0.665 percent earlier this month.

"With no end to the BOJ's massive bond-buying scheme in sight, volatility is unlikely in the bond market. Japan's long-term yields will likely stay low until next year," Kodama said.

(Editing by Kim Coghill)

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