China will allow its basic endowment pension fund to invest in stock markets, Bloomberg News reported, citing 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 proposed rules.
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.
Chinese stocks entered a bear market on Monday, as the exodus of over-leveraged investors overshadowed central bank efforts to revive confidence with an interest-rate cut over the weekend, the news agency said.
Chinese regulators are expected to take additional steps to steady the market, including possibly suspending initial public offerings, it added.
“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 Beijing-based researcher at China Minsheng Banking Corp., told Bloomberg. “The Chinese market will be stabilized by the policy.”
The ministry is seeking public views on the proposal until July 13.
As of the end of last year, the basic pension fund had an outstanding value of 3.59 trillion yuan (US$578 billion), according to the official Securities Times.
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 rules.
Money can also be used in equity investments for restructuring companies or in public listings of major state-owned companies, the rules said, adding that the money can only be invested domestically.
The Shanghai Composite Index dropped 3.3 percent on 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.
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