Chinese pensioners are about to double down on stocks

Photo: Joe Raedle/Getty Images

It’s fair to say China’s stock market has endured a tumultuous 2015. A frenzied rally in the first half, which saw mainland indices post gains of more than 150% in the 12 months to early June, was quickly replaced by an equally savage bear market, resulting in losses of close to 50%.

Shanghai Composite 12-Month Chart

And now Chinese pensioners will have to pay more attention to after an important announcement from the government overnight.

According to the state-run news agency Xinhua, China’s pension funds will be allowed to invest up to 2 trillion yuan (US$315 billion) in capital markets in 2016, including up to 30% in the nation’s stock market, under new government rules.

The rules, first mooted in August, will allow pension funds to move assets parked in lower-yielding bank deposits and treasury bonds into higher yielding assets such as stocks.

To minimize risk, the guidelines restrict the proportion of funds invested in stocks and equities to 30% of total net assets. Provincial-level governments determine the amount to be invested, and only institutions authorized by the State Council can manage and invest the funds, said Xinhua.

Like many nations, particularly developed nations, China faces the dilemma of an aging population grossly underfunded for retirement. According to data released by the government, the county’s total social security fund pool had net assets of 3.5 trillion yuan as of the end of 2014, or around US$550 billion.

Whether due to the need for greater pension returns, or simply to help underpin the nation’s still-shaky stock market, China’s tiny pension assets under management are about to be exposed to asset classes that not only offers the prospect for higher returns, but also substantially more risk as well.

You can read more here.

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