Pen­sion funds can in­vest in stocks

China Daily (USA) - - BUSINESS - By LI XI­ANG lix­i­ang@chi­nadaily.com.cn

China will likely of­fi­cially al­low pen­sion funds to be in­vested in the stock mar­ket within this year, with an­a­lysts say­ing the move will help boost mar­ket con­fi­dence while the long-term im­pact on risks will only grad­u­ally ap­pear in the com­ing years.

The first batch of pro­vin­cial govern­ments will be able to sign con­tracts with the Na­tional Coun­cil for So­cial Se­cu­rity Funds within this year, the Min­istry of Hu­man Re­sources and So­cial Se­cu­rity said ear­lier.

Un­der the con­tracts, the NCSSF, a na­tional so­cial se­cu­rity re­serve and a ma­jor in­sti­tu­tional in­vestor, will in­vest and man­age the funds on be­half of the lo­cal govern­ments.

The value of China’s pen­sion funds stood at 3.99 tril­lion yuan ($600 bil­lion) at the of end of last year, ac­cord­ing to of­fi­cial data. Reg­u­la­tions al­low a max­i­mum 30 per­cent of the fund’s to­tal net as­sets to be in­vested in se­cu­ri­ties, in­clud­ing stocks.

Gao Ting, head of China strat­egy at UBS Se­cu­ri­ties, said that the ac­tual amount of cap­i­tal en­ter­ing the mar­ket ini­tially will not be large and as a typ­i­cal medium- to long-term funds, the im­pact on mar­ket risk pref­er­ence is likely to grad­u­ally ap­pear in the next few years.

Gao added that the pen­sion funds will likely have real es­tate and health­care as their pre­ferred sec­tors.

For years, China’s pen­sion funds could only be in­vested in low-yield bank de­posits and province. trea­sury bonds. Be­tween 2008 and 2015, the av­er­age rate of in­vest­ment re­turn by pen­sion funds was only 2.9 per­cent.

The rapidly ag­ing so­ci­ety in China also poses chal­lenges for the man­age­ment of the pen­sion funds, spark­ing con­cerns on whether the funds would be suf­fi­cient to sup­port the ag­ing pop­u­la­tion.

The gov­ern­ment has been re­form­ing the reg­u­la­tions on pen­sion funds, in­clud­ing broad­en­ing the per­mit­ted in­vest­ment chan­nels and grant­ing greater in­vest­ment flex­i­bil­ity.

In 2012, the cen­tral gov­ern­ment ini­ti­ated a pi­lot pro­gram to al­low the NCSSF to man­age the pen­sion funds on be­half of lo­cal govern­ments.

Guang­dong and Shan­dong prov­inces have al­ready re­ceived reg­u­la­tory ap­proval to en­trust their pen­sion funds, worth about 200 bil­lion yuan, to the NCSSF for in­vest­ment in the do­mes­tic cap­i­tal mar­kets.

It is es­ti­mated that about 240 to 300 bil­lion yuan will ini­tially en­ter the mar­ket, ac­count­ing for less than 1 per­cent of the over­all cap­i­tal­iza­tion of the A-share mar­ket.

“The short-term ef­fect will be min­i­mal given that the ini­tial amount of cap­i­tal will be lim­ited. But, it will help boost in­vestors’ con­fi­dence and will be pos­i­tive for big-cap stocks,” said Dai Kang, an an­a­lyst at Hu­atai Se­cu­ri­ties Co Ltd.

Value of China’s pen­sion funds It will help boost in­vestors’ con­fi­dence and will be pos­i­tive for big-cap stocks.”

Dai Kang,

an­a­lyst at Hu­atai Se­cu­ri­ties

ZOU HONG / CHINA DAILY

Pen­sion­ers gather for a Pek­ing Opera-based group ac­tiv­i­ties at a pen­sion cen­ter in Yan­jiao, He­bei

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