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POLL-Japan fund managers cut stock weightings, shun Europe

Published 01/28/2009, 10:35 PM
Updated 01/28/2009, 10:40 PM

By Shigeo Kodama

TOKYO, Jan 29 (Reuters) - Worries over a deepening global recession and a threat of deflation prompted Japanese fund managers to slash their global stock weighting to a 5-½ year low and boost their bond allocation to a decade-high in January.

By region, they have reduced exposure to the euro zone and United Kingdom in both stocks and bonds, as they worry the deteriorating economy in Europe could pressure the euro and sterling.

The average stock allocation for 12 fund managers, who were asked about their investment stance for the coming month, fell to 49.8 percent in January -- the lowest reading since May 2003 -- from December's 52.8 percent. That was the largest percentage point drop in 5-½ years.

"It's hard to expect a recovery in the economy," said Yoshinori Nagano, senior strategist at Daiwa Asset Management. "Given that worries about deflation could grow in the future, we will have stocks underweight and bonds overweight."

The poll, conducted Jan. 15-26, also showed bond allocations jumped to 45.7 percent in January from 42.2 percent in December, marking the highest level since December 1998, when Japan was mired in a home-grown banking crisis.

Risk aversion grew as the global economy shows few signs of recovering even as governments poured in massive amounts of funds to shore up the economy and keep ailing banks alive.

Japanese fund managers turned wary of the economic outlook for Europe in particular.

Within the equities portfolio, the weighting for euro zone stocks dropped to 13.9 percent from 14.5 percent in December, while that for Britain fell to a four-year low of 7.0 percent from 8.1 percent.

The weighting for the rest of Europe dropped to 1.9 percent, the lowest reading for the current geographic divisions in the poll, from 2.2 percent as many former socialist countries face a sharp downturn, with some asking the International Monetary Fund for rescue.

In contrast, the weighting for U.S. and Canadian shares rose to a 5-½ year high of 48.9 percent from 47.3 percent. That for Japanese stocks rebounded to 21.5 percent from 20.6 percent

"The U.S. economy will avoid a sharp contraction thanks to falling interest rates, the Fed's buying of mortgage-backed securities and the government's support for the Big Three (U.S. automakers)," said Akio Yoshino, chief economist at Societe Generale Asset Management.

Some fund managers said Japanese shares have limited room to fall further given the cheapness of their price-to-book ratio, but others were worried the yen's strength could hurt Japanese shares.

Indeed, within bond portfolios, fund managers boosted their weighting for Japanese bonds to 25.6 percent, leaping from 20.3 percent in December and the highest since August 1995, when the economy had been threatened by the yen's rise to a record high of 79.75 per dollar a few months earlier.

The weighting for U.S. and Canadian bonds was cut to a record low 28.5 percent, from 29.6 in December.

The allocation for European bonds was also trimmed as fund managers fretted over the recent fall in European currencies against the yen despite their bleak view of European economies.

The yen rose to a seven-year peak against the euro and a record high against sterling earlier this month, as European currencies were shunned on worries about the health of the financial sector in Europe.

(Writing by Hideyuki Sano; Editing by Brent Kininmont)

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