The National Council for Social Security Fund is hoping to expand its investment portfolio to include overseas capital markets, and Hong Kong looks to be a likely beneficiary of initial moves.
China’s social security fund is expected to enter overseas capital markets as administrators to seek new investment channels, officials said on February 17.
"I believe the social security fund's overseas investment policy will be approved," Frederick Ma, secretary for Financial Services & the Treasury of Hong Kong, told reporters in Beijing on February 17 after meeting with Xiang Huaicheng, the head of the National Council for Social Security Fund (NCSSF).
Ma said he had discussed Hong Kong's investment environment with Xiang and hoped that the council would select Hong Kong as the preferred market for overseas investment.
The decision looks likely, but the exact timetable and details of the overseas investment plan were not discussed, he said.
If approved, the council would be China's first QDII (qualified domestic institutional investor) to invest in overseas capital markets.
Controlling about 124 billion yuan (US$15 billion) worth of assets at the end of 2002, the council has been seeking investment channels other than bank deposits and bond purchases for higher returns.
By the middle of last year, it formally authorized six domestic fund managers to help it invest in securities in the mainland market. But according to policies concerning risk, only a small portion of the fund can be allocated to stock investment.
A spokesman with the NCSSF said on February 17 that the council had conducted considerable research and analysis of overseas investment for the national social security fund, as well as a related risk control scheme.
But the Ministry of Finance will design the exact policy and time frame. It would then have to receive final approval from the State Council, he said.
The Ministry of Finance has reportedly already submitted to the State Council a detailed proposal that suggests a 4 - 5 billion yuan (US$483 - 603.8 million) initial investment by the NCSSF in the Hong Kong market. But the report has not been confirmed by the Chinese authorities, who are still ironing out details in the matter.
"Even after the top leaders give the go-ahead for the proposed plan, whatever it is, we still have a lot of preparing to do, including choosing the fund managers, custodians and drafting regulations to facilitate the practice," the NCSSF spokesman said.
If overseas investment is approved the social security fund, it may divert some funds from domestic markets in the near term but the impact will be limited, said Chen Jun, vice-general manager of the Beijing branch of Boshi Fund Management Co., which has been handling domestic securities investment for the NCSSF.
The amount of funding that will flow to overseas markets will largely depend on the expected returns, he said, adding that the recovery of the mainland stock exchange will make such investments more attractive.
For Hong Kong’s financial market, investment involving the mainland's social security fund will have a long-term positive impact, since the fund is comparatively stable and will add a healthy impetus to the market, said Ben Kwong, associate director at KGI Asia in Hong Kong.
But he did not expect the market shares to be pushed up drastically as the social security fund, with a conservative investment methodology, would enter overseas markets gradually and based on market fundamentals.
Edmond Lee, a strategist at Sun Hung Kai Securities, said it is more likely for the social security fund administrators to choose H-shares, red-chips and individual blue-chips with high market capital and low volatility.
(China Daily February 18, 2004)