Japan's public pension fund, the world's largest, will start investing in emerging market stocks as early as this quarter as it seeks to diversify assets and cover rising payouts. The Government Pension Investment Fund, which oversees 108 trillion yen ($1.3 trillion), has decided on the managers who will handle the investments and is now in the process of setting up accounts in prospective markets, said Takahiro Mitani, president of the fund, known as GPIF. He declined to name the managers until investments are actually made or disclose the amount of the allocations.

"We expect to start investing in emerging market stocks by the end of this quarter or the beginning of the next quarter," Mitani, 63, said in an interview in Tokyo today. "Because the markets are less liquid than the developed ones, we'll likely begin with a small amount and then decide on whether to buy more depending on how it goes."

The investments will be focused on markets included in the MSCI Emerging Markets Index (MXEF), which tracks 21 countries including Brazil, Russia, India, China, South Korea, Taiwan and South Africa, Mitani said. The gauge has gained 13 percent this year compared with an 8.6 percent increase in the MSCI World Index (MXWO) of developed stocks.