Update | Bumpy road for China stocks as pension fund gets investment go-ahead

The State Council said on Sunday that it will allow China’s pension fund to invest up to 30 per cent of its total 3.5 trillion yuan in net assets in equities and stocks, a likely bid to support the flagging market that billions of yuan in injected liquidity over the past week has failed to revive.

The much anticipated move from the top decision-making body was aimed at boosting returns at the fund, which has so far been limited to low-yielding treasury notes and bank deposits, Xinhua news agency reported.

The pension fund accounted for about 90 per cent of China’s social security pool.

Markets in Shanghai and Shenzhen suffered last week as retail investors seemingly took advantage of any modest advance in the markets as an opportunity to dump stocks.

The benchmark Shanghai Composite Index lost 11.5 per cent over the past week to hit a six-week low on Friday, as sentiment worsened amid soaring capital outflows and escalating tension between North and South Korea. The sentiment dragged Hong Kong’s Hang Seng Index, which lost 7 per cent to touch a 15-month low.

The upcoming week could see a battle in the market between two forces. The Chinese government could step up its monetary loosening to rescue the market as the key Shanghai index is struggling to stay above the psychological 3,500 point level.