China Lets Pension Funds Invest in Domestic Stocks For First Time

Amidst market turmoil, China decided this summer to begin letting its pension funds invest in domestic stocks for the first time.

Under the new rules, released this week, the country’s pension funds will be able to allocate up to 30 percent of assets – $97 billion, collectively – in domestic equities.

From the Guardian:

China has cleared the path for local authority pension funds to invest in the stock market for the first time, potentially channelling hundreds of billions of yuan into the country’s struggling Shanghai exchange. After a week of turbulence that sent world stock markets spiralling to their worst weekly loss for the year, Xinhua, the official news agency, reported on Sunday that under the new rules, the fund will be allowed to invest up to 30% of its net assets in domestically listed shares.

The move, which is likely to be seen as a brazen attempt to inject pension cash into the market to shore up prices and restore investor confidence, comes ahead of several reports that are likely to show the world’s major economies struggling to recover as China’s main industries slowdown.

[…]

Previously, Chinese pension funds could only invest in bank deposits and treasuries. Together the funds have assets of more than 2tn yuan ($322bn) that can be invested, meaning about 600bn yuan ($97bn) could theoretically go into the stock market, state media has estimated.

According to the new rules, pension funds can also invest in convertible bonds, money-market instruments, asset-backed securities, index futures and bond futures in China, as well as the country’s major infrastructure projects.

China’s benchmark Shanghai Composite index fell 8.5% on Monday morning.

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