Forces behind the Bid in the Equity Market

In addition to central banks who have been aggressively increasing their equity positions (see my post on the SNB equity position) there are now large pension fund systems that are moving toward more international equity proportions and decreasing their bond portfolio size.

The state pension fund of Japan manages EUR 908 billion (Milliarden). Of that 67% were in bonds, for example Treasuries. The plan now is to reduce that to 60%. In future 12% of the fund shall be invested in japanese equities and 12% in international (foreign) equities. That’s over EUR 100bn each.

The reason behind Japans‘ move is one that works across the developed world. It’s not possible to generate the returns needed with bonds. However most pension fund systems have a large proportion in bonds, thus leading to a ticking time bomb of sorts.

Interesting in this contect: The holdings of US treasuries in Belgium (where they are held by Euroclear for large institutions/banks/central banks) has been exploding. This could mean large amounts of US treasuries are being placed so that they can be sold without alerting the US as to which country is actually selling.

The time has probably never been better to sell, considering the printing press is slowing and the price is still inflated…

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