Japan fund managers grow equity stakes, but not at home: poll

Japanese fund managers slightly increased their asset allocations to shares on the prospect of more monetary easing in the developed world and a pickup in Chinese economy, a Reuters poll showed.

At the same time, however, they trimmed their weighting on Japanese shares to seven-month low as they viewed Tokyo shares' strong performance this month as driven by unrealistic hopes of more money-printing in Japan after next month's election.

A survey of 10 Japan-based fund managers, polled between November 15 and 21, also showed they trimmed their overall bond allocation for two months in a row after notching it up to a record high in September.

"Monetary easing in the United States and Europe should help to curtail various downside tail risks. Chinese macroeconomic data is improving and the world's market players now recognize pressure on the Bank of Japan to ease its policy after the election," said a fund manager at a Japanese asset management firm.

"These are all positive factors for stocks. The market should gradually edge higher," he added.

As risk tolerance crept up, allocation to equities reached 42.0 percent from 41.2 percent in October, although it still fell short of last year's 44.4 percent average.

Bond allocations fell for two months in a row to 51.4 percent from 52.2 percent last month and the record high of 53.3 percent in September.

During the survey period, world stock markets rose on upbeat U.S. economic data as well as optimism U.S. lawmakers would clinch a deal to mitigate the "fiscal cliff" -- $600 billion tax hikes and spending cuts due to kick in next year.

The U.S. S&P 500 index rose almost three percent after hitting a four-month closing low on November 15.

Within their equity portfolios, fund managers raised weighting for U.S. and Canadian shares to 32.9 percent from 31.9 percent last month and cut weighting for Japanese stocks by one percentage point to 32.9 percent from 33.9 percent.

The survey asked respondents if they expected U.S. President Barack Obama and Congress to reach a budget deal by the end of year, and all five managers who answered said they did.

On the other hand, some fund managers were cautious of the rally in Japanese shares sparked by expectations main opposition leader Shinzo Abe will win the December 16 election and increase pressure on the central bank to reverse the country's persistent deflation.

Abe's proposals have included unlimited monetary easing, setting a higher inflation target and a possible review of the law guaranteeing the central bank's independence.

During the survey period, which started just after Prime Minister Yoshihiko Noda called the election, Japan's Nikkei share average <.N225> rose 6.4 percent. It added another 2.2 percent by last Tuesday to hit a seven-month closing high before retreating on profit-taking.

The yen also weakened about four percent to hit 7 1/2-month low of 82.84 yen to the dollar last week.

"The latest moves in the yen and stocks seem like an excessive reaction. It seems to be driven by foreign investors who are not well-informed on Japan," said Yuichi Kodama, chief economist at Meiji Yasuda Life.

"Policies that could cause unexpected moves in long-term bond yields will likely to meet opposition from the Ministry of Finance and are likely to fall through," he said.

(Editing by Eric Meijer)