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Why global shares could receive a major boost from large pension fund rebalancing
Strategist Nikolaos Panigirtzoglou at JP Morgan estimates global shares could benefit from a $230 billion buying spree as some of the world’s largest investors rebalance portfolios before the end of March.
The activity will be driven by large pension funds and sovereign wealth funds looking to maintain certain levels of asset allocation such as 60% in stocks and 40% in bonds.
Globally stock prices are down around a tenth so far in 2022 while European shares are down around 15%. US pension funds which manage around $8 trillion would need to shift around $24 billion from bonds to equities, assuming they fully rebalanced according to Panigirtzoglou.
Japan has the world’s largest government pension fund valued around $1.6 trillion and could buy as much as $40 billion worth of equities. Meanwhile, Norway’s $1.3 trillion oil fund has benefited from a rise in oil prices and could see a shift from bonds into equities of around $22 billion.
Increased market volatility has seen Switzerland’s central bank intervene in the currency markets to stem the rise of the Swiss franc, seen as a haven in times of stress. The country has the world’s lowest official interest rate of minus 0.75%.
JP Morgan estimates the Swiss National Bank could decide to move around $15 billion into shares before the quarter end in line with its policy of investing some of its reserves into equity markets.