Learn from Shinzo Abe and get out of bonds, says CLSA

Investors should take cues from Japanese Prime Minister Shinzo Abe's urgency to have pension funds trim bond holdings as relative valuations swing in favour of equities, CLSA Asia-Pacific Markets said.

"The danger that bond prices drop from here is very, very real so you need to get out of those things while you've got a chance," said Nicholas Smith, a strategist at CLSA. "The government is saying run, don't walk."

In June, Abe asked the Government Pension Investment Fund, the world's largest pool of pension assets, to bring forward steps to alter the allocation of its 126.6 trillion yen (HK$9.44 trillion) investment portfolio, 55 per cent of which was in domestic bonds at the end of March.

Japan's 10-year debt yield was 0.51 per cent, or 1.16 percentage points below the estimated dividend yield for the Nikkei-225 Index on Monday.

Unprecedented Bank of Japan buying of sovereign notes offered investors a window to sell the debt and move into other investments such as shares, which were "stupid cheap", Smith said.

The Topix index has declined 1 per cent this year after soaring 51 per cent last year as equity investors become impatient to see structural reforms promised by Abe.