CRI听力:Analysts Cautious about Guangdong Pension Fund Investment

Some media outlets and investors have interpreted the national pension fund's move as part of a long-anticipated initiative to boost confidence in the country's weak stock market.

However, the National Council for Social Security Fund issued a statement on Wednesday, clarifying that it would be prudent in its handling of the funds and that it would allocate most of the funds to fixed-income products rather than investing them in the stock market.

Business analyst Ye Tan cautiously welcomed the move, admitting that having the state social security fund manage pensions is better than having the Guangdong government run the funds themselves.

"It will at least produce better investment yields than the current policy. The current yield is lower than the rate of inflation, while some funds have yields comparable to the interest rate of current accounts."

Guangdong's pension funds had an average annual yield of 2% over the last five years, lower than last year's 5.4% rate of inflation. Meanwhile, the National Council for Social Security Fund has maintained a yield of 8% over the last ten years.

But Ye Tan says this step will have a limited impact on the stock markets.

"Judging by the history of the National Council for Social Security Fund, the highest proportion of funds that invested in the stock markets was 30%. The safe proportion is around 20%. So the amount of Guangdong pension funds that will be invested in stocks will be around 20 to 30 billion yuan."

China's shares thus ended flat on Wednesday as a result of weak investor sentiment. China's stock market has underperformed compared to its global peers, experiencing a 22% decline last year, while the Dow Jones industrial average climbed 6%.

China's securities regulator said earlier this year that it would actively pursue using the 1.9 trillion yuan worth of local pension funds and the equally huge housing funds to invest in the country's capital markets.

But Liu Kegu, consultant at China Development Bank, remains cautious on this approach.

"We can't use pension funds, on which society will later depend on, to pay for the tuition fee of developing our capital market."

Liu points out that due to historical reasons, China's capital markets focus more on providing money for businesses, but not enough on providing returns for investors. Furthermore, the mechanism of the Chinese stock market is still not well established. With bad companies unable to effectively exit the market, the risk of making losses is still high.

Meanwhile, Liu also suggests that in order to successfully invest pension funds, similar to that of the US's pension investment project, the 401K, we need to foster professional investors.

"We shall set about cultivating professional financial institutions like JP Morgan and Goldman Sachs; if we have more of those institutions, they can facilitate the investment of huge funds, like pension funds and insurance funds."

For CRI, I'm Ding Lulu.