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Pension fund faces 'grave challenges'

(Agencies)
Updated: 2008-07-21 16:36

China's national pension fund faces "grave challenges" as it tries to shore up its investment yields for the year while the stock market is in a tailspin, Chinese media reported on Monday.

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Dai Xianglong, chairman of the National Social Security Fund, or NSSF, said the fund is trying to stabilise its stock holdings while increasing its fixed income investments, in an interview published in the People's Daily.

"The NSSF faces grave challenges in yielding operating profits for the whole year," he was quoted as saying.

China's eight-year-old national pension fund had assets of 516.2 billion yuan ($72 billion) at the end of 2007, with 181.6 billion yuan worth of investments in domestic and overseas equities.

The fund's total assets are expected to exceed one trillion yuan by 2010, Dai said.

As part of efforts to expand the scope of its investments, the pension fund also plans to set up its own private equity fund, Dai was quoted as saying.

"Our investment decision must not only ensure the maintenance and appreciation of the fund's value, but maintain the stability of the financial market," Dai told the newspaper.

The fund's 2008 yields have been battered by the plunging domestic stock market, which has fallen 48 percent so far this year and nearly 55 percent from a historical high in October.

"The overall realised gains of the NSSF in the first half could not offset the shrinkage of our stock assets in the first half," Dai was quoted as saying.

Analysts said the fund, which is believed to have collected substantial returns on its stock investments when the domestic market peaked last year, was unlikely to slash its domestic stock holdings.

"It's shifting to fixed-income products like bonds or money market funds due to such a sharp fall in stock market," Yan Li, a Beijing-based analyst with Southwest Securities, said.

"But since the fund is believed to have already cut stock holdings to realise gains in the boom in market last year, its position is relatively lower, which makes it really unnecessary to further sell stocks," she said.