Asia's largest pension and retirement plans are facing their fiercest — and potentially lengthiest — risk-off market in more than a decade, with more to lose now due to sharp increases in allocations to equities and other risk assets over that period.
The short-term bill for that growing risk appetite is likely to come due in the current quarter as one country after another shuts down chunks of its economy to contain the coronavirus that originated in China in late 2019 and quickly spread around the globe.
Among big retirement funds in the region, equity allocations have surged to 50% for Japan's ¥169 trillion ($1.61 trillion) Government Pension Investment Fund, Tokyo, from 20% in 2010; to 40.6% for South Korea's 736.7 trillion won ($619.2 billion) National Pension Service, Jeonju, up from 23.1%; and to 39% for Malaysia's 924.75 billion ringgit ($220.7 billion) Employees Provident Fund, Kuala Lumpur, an increase from 27% a decade ago.
Other pension markets in the region — including China, India, Thailand and the Philippines — have either raised their ceilings for equity investments or are considering it.
The bull market for stocks coming out of the global financial crisis since 2009 provided a tailwind for that move away from portfolios dominated by government bonds.
With the worldwide sell-off in equities since late February — prompted by the global spread of the coronavirus and the economic lockdowns countries are instituting to contain it — that gain in equity allocations is translating into pain now, at least for the short term.
As of March 20, the Dow Jones Industrial Average, Japan's Nikkei 225 stock index, the U.K.'s FTSE 100 benchmark and the broader MSCI-All Country World index were all down roughly 30% from the start of 2020.
Year to date through March 20, GPIF's equity allocations are down by an estimated ¥20 trillion or more, or about $190 billion — a 12% drop for the overall portfolio.
Norihiro Takahashi, GPIF's president, and Hiromichi Mizuno, the fund's chief investment officer, could not be reached for comment.
The equity allocations of South Korea's NPS, Asia's second-largest retirement fund, have lost an estimated 75 trillion won, or roughly $62.5 billion, for a 10% overall decline.
Market volatility related to the coronavirus outbreak resulted in an NZ$8.9 billion ($5.6 billion), or 19.5%, drop in value for the New Zealand Super Fund, Auckland, the sovereign wealth fund said in a news release March 20. The fund's portfolio fell to NZ$37.8 billion at the close of trading March 17, from a record NZ$46.7 billion as of Dec. 31. The fund had a more than 70% allocation to listed equities as of the June 30 close of its latest fiscal year.