TOKYO — Japan’s massive government pension fund and central bank apparently have become the biggest shareholders in well over 400 companies on the Tokyo Stock Exchange’s first section — nearly one-quarter of all issues. Concern has heightened that though the active buying buoys stock prices, it may be undermining market mechanisms.
The Government Pension Investment Fund is the largest such fund in the world, managing 130 trillion yen ($1.27 trillion) in assets. In 2014, GPIF raised its target weighting of Japanese equities to 25% from 12%. And the Bank of Japan decided in late July to nearly double its annual purchases of exchange-traded funds to 6 trillion yen, as part of monetary easing.
These major public-sector buyers do not appear on shareholder lists because of their indirect ownership via trust banks and other intermediaries. But The Nikkei estimates that the two together are the largest shareholders for 474 of about 1,970 stocks on the TSE first section, based on public information.
The pension fund and central bank probably hold combined stakes of 17% in TDK, 16.5% in Advantest and 14.2% in Nitto Denko. Their stakes in entertainment company Konami Holdings and security services provider Secom also likely top 10%.
“We hope they will hold the shares over the long term,” said an official of Yokogawa Electric, in which GPIF and the BOJ appear to have a 14.2% stake.
This public money seems to hold a little more than 7% in the first section overall, compared with the 2% or so held by the biggest private-sector investor, Nippon Life Insurance.
In the U.S., public money holds virtually no stake in stocks due to a general aversion to government interference in the market. Even in Europe, where many formerly state-owned companies have gone public, the public sector holds less than 6% of equities.
GPIF and the BOJ increased their domestic-stock holdings by roughly 25 trillion yen over five years through the end of March, to around 39 trillion yen. The Nikkei average jumped 70% over this period, demonstrating their powerful support.
The central bank’s intent to buy 6 trillion yen in ETFs annually will raise the Nikkei average by about 2,000 points, said Hisao Matsuura, chief strategist at Nomura Securities.
The public money props up the market, but it could produce adverse effects. The BOJ manages more than 90% of its domestic equity assets via passive investment, by tracking stock indexes rather than assessing individual stocks. GPIF does the same for over 80% of its holdings.
This blanket approach by such large investors undermines the function of the market. Even companies with earnings and management problems would ride the uptrend and continue raising funds.
“This would weaken management discipline and pose a major problem in corporate governance,” said Chisato Haganuma, chief strategist at Mitsubishi UFJ Morgan Stanley Securities.
Stocks lack the maturity dates of bonds, so the central bank would have to sell ETFs when it winds down monetary easing. These sales would put broad downward pressure on stocks regardless of earnings performance.
“Regular investors who focus on company analyses may hesitate to buy,” said Shingo Ide, chief equity strategist at NLI Research Institute.