Investment of China's Pension Funds in Equities May Help Stabilize Stock Market
Yicai Global
/SOURCE : Yicai
Investment of China's Pension Funds in Equities May Help Stabilize Stock Market

(Yicai Global) July 25 -- Brokered investment of the basic pension fund is to start as soon as possible, said Ministry of Human Resources and Social Security spokesman, Mr. Li Zhong. As a reliable source of high-quality capital, the pension fund is expected to be a key long-term market stabilizer.

The pension fund will be invested in the stock market in separate phases, and the amount involved in the first phase will be relatively small, Mr. Li Lifeng, analyst at Sinolink Securities, predicted.

The first investment of the fund is projected to be CNY400 billion (USD59.89 billion), accounting for merely 1.1 percent of the total market cap, meaning that it will only have a limited direct impact over the short term. However it represents the state's stance on stock market investment and therefore plays a positive role, Mr. Zhang Jing, analyst at Huatai Securities.

Market participants previously estimated that around CNY2 trillion of pension funds would be invested in the stock market, but the funds would not be invested all in one go, given the many obstacles in fund collection, according to Dr. Zheng Bingwen, director of the Centre for International Social Security Studies at the Chinese Academy of Social Sciences.

Compared to the social security fund, the basic pension fund focuses more on assets value preservation, and may adopt a more conservative approach to assets allocation, Mr. Zhang pointed out. Once invested in the stock market, the pension fund will guide investors toward value-based investment, and long-term investments will help reduce stock market volatility.

As both life insurance funds and the pension fund are of a long-term nature, the government may consider reforming the stock market and leveraging pension fund investment by introducing tax incentives, Dr. Zheng said.

Follow Yicai Global on