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China pension fund to raise overseas investment cap
(Agencies)
Updated: 2009-12-17 17:32
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China's $80 billion national pension fund plans to boost its investments abroad, Chinese media reported on Thursday, as China faces renewed pressure to let its currency appreciate after global markets stabilize.
China's National Social Security Fund (NSSF) will raise its overseas investment limit to 20 percent of total assets from the current 7 percent, the China Securities Journal reported, citing Chairman Dai Xianglong. He did not specify when the investment cap would be lifted.
China is now under increasing pressure to let its currency appreciate as the global financial crisis calms.
Allowing more Chinese money to be invested overseas will help ease that pressure, said Zhao Qingming, analyst at China Construction Bank.
"NSSF needs to convert yuan into foreign currencies to invest overseas, which would surely ease pressure on accumulation of foreign exchange reserves," Zhao said.
On the other hand, "the global economy is recovering, so there will be some nice investment opportunities."
China Investment Corp (CIC), the country's $300 billion sovereign wealth fund, has also stepped up activities in global financial markets this year, and the government in October resumed issuing quotas for overseas investment under the Qualified Domestic Institutional Investor (QDII) scheme.
NSSF, the fund of last resort for China's patchwork of underfunded provincial pension schemes, has made an annual investment return of 8.98 percent on average since it was established in 2000. Assets under management are expected to grow to 1 trillion yuan ($146.5 billion) in a year, up from $80 billion at the end of 2008, Dai said on Oct 28.
A NSSF spokesperson declined to comment on Thursday's report.
Asset managers
The pension fund is likely to invest globally either through outside money managers, or through partnerships with Chinese companies going abroad, analyst Zhao said.
NSSF had appointed a new set of foreign asset managers, including BNY Mellon Asset Management and Schroders, to help it with a new round of overseas investment, sources with direct knowledge of the situation told Reuters in June.
"NSSF's investment now is concentrated in the domestic market," said Zhang Haochuan, analyst at fund consultancy Z-Ben Advisors. "But China's capital market is only about 10 percent of the global market, so investing up to 20 percent of assets in places like the US and Europe is not too much."
But in the short term, NSSF may face risks, as the global equity markets have rebounded sharply from their bottoms seen in the worst of the financial crisis last year, while economic prospects remain murky.
Hong Kong's Hang Seng Index has rallied almost 50 percent this year, while the Dow Jones Industrial Average has rebounded 61 percent from its March low.
"The timing now for overseas investment must be worse than a year ago, and would exert pressure on short-term returns," Zhang said. "But if you take a 20-year horizon, the benefit of venturing out outweighs the risks."
