China's pension fund to flow into stock market this year

An investor browses stock information with his smartphone at a brokerage in Nanjing, Jiangsu province. [Photo provided to China Daily]

China's massive pension fund may begin investing in the nation's A-share markets this year, an anticipated move that will channel approximately 600 billion yuan ($92.28 billion) into the equity market and likely improve its liquidity.

The target date comes several months after China's State Council published an investment guideline that would allow the country's pension fund to invest in more diversified and risker products, with the maximum proportion of investments in stocks and equities set at 30 percent of total net assets.

As of last Friday, the nation's A-share markets' combined value totaled about 44 trillion yuan. China's pension fund, which accounts for approximately 90 percent of the country's total social security fund pool, had net assets of 3.98 trillion yuan by the end of 2015. By the end of last year, total investible pension fund nationwide reached approximately 2 trillion yuan, according to data from the Ministry of Human Resources and Social Security.

Yin Weimin, the minister of Human Resources and Social Security, said last week: "Detailed guidelines about how the investments will be conducted are expected shortly and the investments will be made through commissioned institutional investors."

According to a survey by the Shenzhen Stock Exchange, which polled 3,874 small investors from 219 cities around China, more than 77.5 percent of respondents said they had been anticipating the pension fund investments and that the move will bring a wave of liquidity.

The move is expected to not only benefit the equity market but also the pension fund itself, because yields from investing in equities are normally higher than that from treasury bonds or interest rates from bank accounts. Critics have said that the low yields earned from bank accounts or bonds will not meet the increasing demands of a rapidly growing elderly population.

Researchers said it will take time for all of the investible portion of the pension fund to become fully injected into the equity market. Provinces that have already piloted their local pension funds to be invested in the equity market have reported positive yields. South China's Guangdong province reportedly accrued a combined yield of 17.34 billion yuan from a 100-billion-yuan investment.

Once channelled into the equity market, the large sum of capital will boost market sentiment over the short term, add to the number of institutional investors and help build a market with more value investment and less event-driven speculation, said Li Daxiao, chief economist at Yingda Securities Co.

But analysts also warned of the difficulties in consolidating the pension fund. They said it may take longer for the entire 600-billion-yuan fund to be fully injected into the market.

China's pension funds are a patchwork system mostly overseen by city and county-level governments and it has been difficult to consolidate provincial-level funds, said Yang Yansui, director of the Center for Employment and Social Security at Tsinghua University.

Aijian Securities Co Ltd, in a research note, said that as authorities stress an active but cautious approach, the investible portion of the pension fund will enter into the equity market in batches.

It also said that it is likely that the pension fund will initially be invested in blue-chip, large-capital stocks that are relatively stable before moving onto riskier stocks.