China will allow its basic endowment pension fund to invest in stock markets, according to draft regulations posted on the Ministry of Finance’s website.
The fund also will be allowed to invest in domestic bonds, stock funds, private equities, stock-index futures and treasury futures, according to the draft. The proportion of investment in stocks, funds and stock-related pension products will be capped at 30 percent of the pension fund’s net value, according to the proposed rules posted Monday.
Chinese stocks entered a bear market Monday, as the exodus of over-leveraged investors overshadowed central bank efforts to revive confidence with an interest-rate cut over the weekend. Chinese regulators are expected to take additional steps to steady the market, including possibly suspending initial public offerings.
“The access of the pension fund as a long-term investor will remarkably increase liquidity supply and will benefit the sustainable, healthy development of the stock market,” Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing, said by text message. “The Chinese market will be stabilized by the policy.”
Feedback on the draft rules can be given until July 13, according to the statement. The basic pension fund’s outstanding value was 3.59 trillion yuan ($578 billion) at the end of last year, the official Securities Times reported in May.
Short positions held by the basic endowment fund in stock-index futures and treasury-bond futures shouldn’t exceed the book value of the targeted stock indexes or treasury bonds, according to the draft rule. Money can also be used in equity investments for restructuring companies or in public listings of major state-owned companies, it said. The money can only be invested domestically.
The Shanghai Composite Index dropped 3.3 percent Monday to close at 4,053.03, taking the decline from its June 12 peak to more than 20 percent, entering bear-market territory. The gauge swung between a loss of 7.6 percent and a gain of 2.5 percent on Monday, its biggest intraday point move since 1992.
The recent selloff brings to an end China’s longest bull market, a rally that lured record numbers of individual investors and convinced traders to bet an unprecedented amount of borrowed money on further gains.
Saturday’s interest-rate cut, along with assurances from the securities regulator that risks from margin trading are controllable, failed to ease concerns that speculators are unwinding their positions.
— With assistance by Alfred Cang