China’s pensioners to get customised mutual-fund products for stock investment

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China’s pensioners will have a new channel to invest in the nation’s US$7.7 trillion stock market, as the securities regulator outlines requirements for asset allocations and holding periods for a new type of mutual fund serving retirees.

Such funds should adopt a strategy of “stable asset allocations” and pursue a “long-term increase in asset values”, the China Securities Regulatory Commission (CSRC) said in a guideline published on its website, inviting public feedback. The new, customised funds can invest in fund-of-funds products, with the maximum investment in balanced funds set at 80 per cent of the assets and 60 per cent for pure stock funds, according to the guideline.

Direct investment in equities should not exceed 30 per cent, it said.

The introduction of the new fund product may to some extent ease pressure on government pension payments, as big mainland cities such as Shanghai try to cope with the financial burden of an ageing society. It should also help add stability to the nation’s stock market by playing the role of a long-term holder of equities.

Volatility in the benchmark Shanghai Composite Index is near record lows as state-backed funds, sometimes dubbed the “national team”, are thought to frequently intervene in the market to rein in price swings. Policymakers created the state buyers of equities, led by China Securities Finance, after a boom-to-bust cycle wiped off about US$5 trillion from market values in 2015.

Though about 80 per cent of stock trading is still carried out by individual investors, the army of institutional investors is growing. The size of China’s mutual fund industry has topped 10 trillion yuan (US$1.51 trillion) for the first time this year. Mutual fund managers have beaten hedge funds this year by betting on large-cap companies that are the leaders in their respective industries.

Managers should have more than five years of experience as fund managers before being eligible to run a fund serving pensioners, and the firms must have a research team of at least 20 people, according to the new CSRC guideline. Subscribers to the funds will be locked in for at least a one-year holding period, it said.

China’s state pension funds have slated 430 billion yuan for investment in stocks and bonds and 180 billion yuan were already invested, the ministry of human resources and social security said this month. They can invest as much as 30 per cent of assets in stocks and stock funds.

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