BLF mulls external Europe and Japan equity mandates

Taiwan’s Bureau of Labor Funds (BLF) is looking to increase its exposure to Europe and Japan in its overseas allocations on the back of macroeconomic improvements in the two regions, according to its director general.

“In this year, we should reconsider several developed countries, and Europe and Japan are two regions that we pay attention to as they will likely expand at a faster rate,” Tsay Feng-Ching (pictured left), head of BLF, told AsianInvestor.

Europe is set to become the first region that BLF will weigh up in, followed by Japan. Tsay said BLF would initially prioritise increasing its equity exposures to the two markets.

While equity market valuations across much the globe are sitting at high levels, Europe's stock markets still offer opportunity because economic expansion there will relatively be faster, he said.

At present, overseas allocations account for 48% of the portfolio of the NT$3.63 trillion ($124 billion) state pension manager. This will likely increase to about 50% for this year and the growth will in part be driven by the potential rise of exposure in Europe and Japan, Tsay said.

But he declined to tell the likely timing or the size of an increase of BLF's level of exposures in Europe and Japan. “We don’t have a specific proportion [for the level of increase] for now. It will depend on the accomplishments of the policies in Europe and Japan in the first half of the year,” he said.

As part of its plans, BLF is considering awarding external investment mandates. Tsay said they are likely to be international in nature, as despite its investment priorities BLF does not want to restrict fund managers to a single market.

“If the funds are solely for Europe, the managers will have less flexibility. So we want to give them more regions for them to choose from,” he said.

France>Germany

Part of the reason BLF is looking to add investments into the European Union is the fact that the countries look set to add in new reform efforts to supplement or replace the long-running negative and ultra-low interest rate policies to help stabilise their economies amid low inflation and weak growth.

Tsay believed this will eventually end. He said the European Central Bank looked unlikely to keep using quantitative easing to further stimulate the economy as the monetary policy tools have already reached their limits. The authorities will most likely switch to fiscal policies, he said.

Tsay said he was particularly interested in the economic prospects in France, which is more promising after centrist politician Emmanuel Macron won the presidency last year.

Macron is very concerned about labour issues, and Tsay said the country looks likely to increase public spending to bring about more employment opportunities. Other countries may follow suit, offering the Eurozone more potential economic upside this year, he said.

“[Macron's] approaches are more pragmatic. He represents a new ideology…his [labour] policies will influence other countries in Europe,” he said.

Previously investor attention on the EU focused mostly upon Germany, but now France deserves the most attention following Macron's accession to power, he said. Former investment banker Macron defeated staunch nationalist Marine Le Pen to become French president in May 2017.

Prospects in other parts of Europe are less rosy, following surprise political outcomes last year. UK prime minister Theresa May's Conservative Party lost its outright partliamentary majority in the general election in June 2017, while radical right-wing AfD has entered parliament as the third-largest party in the federal election in Germany in September. 

Womenomics in Japan

Meanwhile, Tsay pointed to Japanese prime minister Shinzo Abe’s stimulative economic policies, such as his efforts to include more women in the working force and relax rules on immigrants, to finally stimulating more economic growth in the country. 

Labour policies like 'womenomics' had not been pursued by the past prime ministers, despite an aging population being the most serious problem in Japan, he said. In addition, Abe has pushed for more elderly people to remain in work and stay active in later life.

Last week, the country approved plans to let people choose to start drawing their state pensions beyond the age of 70. The current law allows one to collect their pension at any time between the ages of 60 and 70. It is also planning to raise in stages the mandatory retirement age for some 3.4 million civil servants to 65 from the current 60.

“Asia is facing an aging population and Japan is tackling the problem more proactively,” he said.

BLF has been steadily expanding its investment portfolio on the back of increasing assets. In November the pension fund invited bids for a five-year overseas investment mandate for its global absolute-return equity portfolios, which worth a total of $2.8 billion. The pension fund has already decided on the fund managers for those particular mandates, but a BLF spokeswoman declined to reveal which firms were chosen.

BLF's existing overseas equity strategies also include global enhanced equities, Asia ex Japan active equities, global passive equities, global emerging-market equities, global fundamental index passive equities, global low-volatility passive equities, global high-dividend enhanced equities, and global high-quality enhanced equities.