China to limit SSF’s exposure to stock market

20 March 2017   Category: News, Asia, China   By Asia Asset Management

China’s Social Security Fund (SSF), a supplementary pension fund, will have “relatively low” exposure to the nation’s equities for better risk management, according to the head of the National Council for Social Security Fund (NCSSF).

Lou Jiwei, chairman of the NCSSF, says the pension fund has low tolerance for volatility and hence, a lower target for investment yield due to a relatively short period of investment. He made his remarks on the sidelines of the annual session of the National People’s Congress, according to state-run China Daily.

NCSSF, the supervisory body of the SSF, seeks to prioritise safety of the nest eggs of workers and retirees over aiming for higher yields by taking a conservative approach to investment.

Mr. Lou, a former finance minister, says the government will ensure that 95% of provincial pension funds’ investments in financial markets will be profitable, and therefore they will have a “relatively low” exposure to the stock market. He didn’t specify what percentage he would consider low. 

China’s rapidly ageing population adds financial burden on local governments, prompting the central government to take steps to improve the investment returns of pension funds, which have long been criticised for their low yields.

Among other things, seven local governments handed over management of pension funds totalling approximately 360 billion RMB (US$52.37 billion) to the NCSSF for centralised asset management in February of this year. 

According to the NCSSF’s latest report, the SSF secured an investment return of 15.19%, or 229.4 billion RMB, in 2015. The SSF has posted an average annualised return of 8.82% since it was established in 2000.