China’s Pension Fund to be Injected into the Equity Market
The massive pension fund will start it’s investing in China’s A-share market in an anticipated move that will channel around 600 billion yuan into the equity market, thus improving its liquidity. Target date is said to come in several months once the China’s State Council publishes the investment guideline that allows the country’s pension fund to invest in diversified and riskier products using maximum proportion of investments in stocks and equities at 30 percent of the total net assets.
As of Friday, China’s A-share market has a combined value totaling 44 trillion yuan. And China’s pension fund accounts for around 90 percent of the country’s total social security fund pool with a net asset of 3.98 trillion yuan by the end of 2015. At the end of 2015, that total investment pension fund nationwide was at 2 trillion yuan, this was based on the report that was released by the Ministry of Human Resources and Social Security. The minister of Human Resources and Social Security Yin Weimin said that detailed guidelines on how the investment was conducted are expected soon and investments are made through commissioned institutional investor. Based on a survey that as done by the Shenzhen Stock Exchange, polled more than 3,000 investors from 219 cities around China. 77.5 percent that responded said that they had been anticipating the pension fund investments and the move will bring in a wave of equity.
The move will not only benefit the equity market, but the pension fund itself due to the yields from investing in equities are higher than treasury bonds or interest rates from bank accounts. Critics said that low yields from bank accounts and bonds do not meet the increasing demand of a fast growing elderly population. Researchers said it will take time for all investible portion of the pension fund to become fully injected in the equity market. Provinces already have piloted local pension funds to be invested in the equity market already reported positive yields.
Once channeled into the equity market, a large sum of capital boosts the short term market sentiment, adding to the number of institutional investors while helping build a market that has more value investment and a less driven speculation. Analysts have also warned of difficulties in consolidating pension funds, saying that it might take longer for the entire 600 billion yuan to be injected into the market. Chinese pension funds are a patchwork system that is overseen by city and country level governments and it’s been difficult in consolidating provincial level funds. Most likely that pension fund will initially be invested in the blue chip and large capital stocks that are stable before it will be move to riskier stocks.