China’s local pension funds are collectively readying their entrance to the country’s domestic stock market, and they plan to make a splash to the tune of $300 billion.
China’s pension system has historically invested only in government bonds. But the low returns aren’t a good match for the country’s aging population, according to the pension system. So, it was decided last year that pension dollars be allocated to equities.
That process will begin soon.
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The country’s local retirement savings managers, which have about 2 trillion yuan ($300 billion) for investment, are handing over some of their cash to the National Council for Social Security Fund, which will oversee their investments in securities including equities. The organization will start deploying the cash in the second half, according to China International Capital Corp. and CIMB Securities.
For the nation’s equity markets — which are dominated by retail investors and among the world’s worst performers this year — the state fund’s presence is even more valuable than its cash, said Hao Hong, chief China strategist at Bocom International Holdings Co.
The NCSSF has “such a good reputation in being a value investor that if they take the lead, the signaling effect is actually quite strong,” said Hong, who had predicted the start and peak of China’s equity boom last year. “It’s almost like Warren Buffett saying he is buying a stock.”
The entry “will be a positive event in terms of sentiment but the actual impact won’t be drastic,” said Ben Bei, an analyst at CIMB Securities in Hong Kong. “The fund will tend to be prudent and the progress may be very gradual — that is, it will enter the market over the next several years.”