Caixin
Oct 26, 2016 07:39 PM

Several Local Pensions Funds to Be Ready to Invest in Equity Market Before End of Year

(Beijing) — Several Chinese provincial-level governments will be ready to invest part of their multitrillion-yuan pension funds in stocks and equity funds before the end of the year, a senior government official said Tuesday.

The move aims to boost returns of the funds, which are stretched by an aging population.

The first batch of provincial governments are expected to sign contracts with the National Council for Social Security Fund (NCSSF), the manager of local pension funds under the State Council, before the end of the year. The contracts will allow the provinces and regions to tap into the equity market, said Li Zhong, spokesman for the Ministry of Human Resources and Social Security. The NCSSF will select professional investment firms to make actual investments, he said.

Some provinces have worked out detailed plans, including the amounts they plan to invest, said Li, without naming them. But the institutions that will be entrusted to carry out the investments haven't been selected, Li added.

In 2015, China's total pensions amounted to 4 trillion yuan ($590 billion), government data showed. A maximum 30 percent of this, or 1.2 trillion yuan, can be invested in stocks and equity funds on the mainland, according to the new arrangement. The rest can be invested in asset-backed securities, bonds, index futures and bond futures in China, as well as major infrastructure projects.

The first batch of provinces that tap into the equity market may invest about 400 billion yuan altogether, said Zhang Jing, a researcher at Huatai Securities. This amounts to just over 1% of the total value of the Shanghai and Shenzhen Stock exchanges combined.

Allowing pension funds to invest in stocks — for the first time — would channel hundreds of billions of yuan into the country's A-shares market, which is still recovering after a crash that erased trillions of yuan in value last year.

Pension funds are likely to focus on long-term returns when investing in stocks, unlike speculators, which will help stabilize the market, Zhang said.

But, it is not clear when retirement funds will start investing in stocks because it is up to the third-party investment firms to decide on the timing, the ministry said in a statement on its website.

Earlier, pension funds were limited to safer investment options with low returns such as bank deposits and government bonds. But a rapidly aging population and rising inflation has drained many of them. In 2015, retirement funds in six provinces — Heilongjiang, Liaoning, Jilin, Qinghai, Shaanxi, Hebei — were forced to pay out more money than they collected as the provinces saw an exodus of their young working-age populations as traditional heavy industries lost steam, data from the ministry showed. Allowing these ailing funds to diversify their investment portfolio could help boost yields, some analysts said.

Contact reporter Coco Feng (renkefeng@caixin.com); editor Poornima Weerasekara (poornima@caixin.com)

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