China’s financial authorities are to relax equity investment rules for the country’s main pension fund, as they grapple with plunging stock prices.
The country’s State Council gave approval on Sunday for up to 600 billion yuan ($94 billion) to be invested by the Chinese “basic pension insurance fund” into the stock market, according to state-run news agency Xinhua.
“The management of the funds must prioritize safety and firmly control risks.” —China State CouncilThe fund has roughly 3.5 trillion yuan in assets, 2 trillion of which is available for investment. With the proposed new rules allowing up to 30% of a fund’s assets to be invested in equities and equity funds, roughly 600 billion yuan could be channelled into China’s stock markets.
The State Council called for an “active and cautious” approach to equity investing, Xinhua reported. “The management of the funds must prioritize safety and firmly control risks,” the council said.
The rule change comes after Chinese authorities have struggled to support the country’s equity indexes through a turbulent summer.
The Shanghai Composite has fallen in value by more than a third since its peak in mid-June, according to Bloomberg data, completely wiping out the index’s gains made in the first half of the year. It fell a further 9% today.
Hong Kong’s Hang Seng index has traced a similar path, plunging 21.2% since its peak at the end of April to finish on Friday down 6.1% for 2015 so far.
During the worst of the sell-off in June and July, a wave of Chinese companies stopped their shares from trading on local exchanges to prevent further falls, and the regulator temporarily banned investors holding stakes higher than 5% from selling.
The People’s Bank of China devalued the yuan by 2% earlier this month in an effort to boost exports, spooking equity markets further.
Officials said the new pension investment rules were aimed at diversifying local and regional pension funds’ investment channels and enhancing income. China’s demographics are set to change dramatically in the years ahead as more and more people retire—already, 10% of the country’s population is over the age of 65.
Separately, Xinhuaalso reported over the weekend that roughly 62 billion yuan will become eligible for trading this week as lock-up rules expire. Some investors are required to hold stocks for up to two years before trading under current rules. The amount expected to become tradable this week is the highest on record.
Dutch asset manager NN Investment Partners recently warned that investors could be underestimating the risks posed by China’s stock market woes, but a survey by Bank of America Merrill Lynch earlier this month found that fund managers considered China the biggest tail risk to their portfolios.
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