Market Scramble: Mini-'whale' surfaces as Trump rally fades
Japan Post Insurance providing downside support for domestic shares
KEITA SEKIGUCHI, Nikkei staff writer
TOKYO -- The slowing momentum of the market rally that followed Donald Trump's win in the U.S. presidential election is shedding light on a major Japanese investor supporting the stock market here.
On Tuesday, the Nikkei Stock Average fell sharply in the morning but pared declines in the afternoon to end down just 0.35% on the day, at 18,910. Market participants are increasingly wary of the yen reverting to its earlier strength. The currency, which had weakened to more than 118 yen per dollar in the Trump market rally, had strengthened to the 111 level as of Tuesday.
From a supply-demand perspective, large players are providing downside support by buying on dips.
"As expected, domestic investors have turned to buying as the Nikkei average fell below the 19,000 mark," said Yukio Ikehata, head of global equity trading at Daiwa Securities.
Much of the analysis for Tuesday's trading pointed to such domestic investors as the Bank of Japan and the Government Pension Investment Fund as key players. But the smaller Japan Post Insurance apparently joined them in buying into the wider market's fall. Because of its blue corporate logo, the insurance arm of the Japan Post Holdings group is sometimes referred to as a "mini blue whale."
Japan Post Insurance has been shrinking its yen-interest-rate assets in the second half of fiscal 2016, while adding riskier assets in a bid to boost returns. Targeted purchases of individual stocks with high dividend yields constitute the core of this effort. The insurer, which went public in 2015, has developed in-house expertise to manage assets so that it can increase stock investment regardless of the Trump rally, an official said.
Domestic shares or foreign bonds
At the end of September 2016, Japanese shares made up of just 1.6% of Japan Post Insurance's asset holdings. The percentage for other life insurers was 8.4% in fiscal 2015, according to the Life Insurance Association of Japan. In value terms, Japan Post Insurance's Japanese shareholdings amounted to 1.29 trillion yen ($11.5 billion at current exchange rates) back in late September. So just doubling the percentage would translate to more than 1 trillion yen in purchases.
How exactly the company would approach share buying is another focus of attention. The insurer seems to be chasing shares with dividend yields that surpass its own projected 2.24% yield.
Ricoh, for instance, has a dividend yield of 3.7%, and gained 1.16% Tuesday even as the wider market declined. Takeda Pharmaceutical, which boasts a dividend yield of 3.6%, also swam against the tide, rising 0.44%.
The Nikkei High Dividend Yield Stock 50 Index has climbed 0.8% since the end of 2016 -- compared with a 1.1% decline for the Nikkei average.
Other life insurers in Japan may also ramp up investment in domestic stocks. When asked by The Nikkei whether higher U.S. interest rates have made foreign-bond investment more appealing, an asset manager at a major life insurer said, rather unexpectedly, that some stocks are better investments than foreign bonds.
A key factor at play is the high cost of currency hedging. It has surged sevenfold since fiscal 2014 to around 1.5%, eroding investment returns on U.S. bonds.
"Hedging will remain expensive for the time being," says Hideshi Aratake, head of economic research at Mitsubishi UFJ Kokusai Asset Management.
Japanese shares are an alternative investment to U.S. bonds. Even though the shares are not rising fast enough to keep investors chasing new heights, many participants seem interested in "buying when prices fall," says Ichiro Yamada, head of equities at Fukoku Mutual Life Insurance.
The BOJ is on pace to surpass its target of 6 trillion yen in exchange-traded fund purchases per year, having bought up more than 3.2 trillion yen worth since the end of August. Speculation is growing that the central bank is ready to put on the brakes.
And rumor has it that the GPIF may invest in U.S. infrastructure as part of a focus outside Japan. The presence of these "passive whales," which buy shares via ETFs tracking market indexes, may ebb, giving way to a new, more active whale on the hunt for individual stocks.