Analysis: China Social Security, Ins. Funds Heap Shares In Q3

Social security funds and insurance funds in China were accumulating shares on the Shanghai and Shenzhen bourses in the third quarter of 2011 to take advantage of the bottom of the market, favoring shares in public services and emerging industries particularly.

China's stubbornly high consumer prices are set to decline in the rest of this year. Growth in the Consumer Price Index (CPI), a main gauge of inflation, is predicted to decline to less than 5 per cent in next year, according to the National Development and Reform Commission (NDRC). Market participants believe that a turning point, including a turning point in China's monetary policy, has been reached.

This turning point indicates that the market slump in recent months is nearing its bottom. Thus, social security funds and insurance funds have chosen to add shares to their positions in the hope of a market rebound followed by a bull run. Social security funds prefer stocks on the SME board, tracking small and medium-sized enterprises (SMEs) in China, while insurance funds still show a preference for the blue-chip stocks.

-- Hunting at the market bottom

Statistics from Wind Info show that social security funds have been buying the shares of 68 stocks in the third quarter with the total number of its shareholdings more than 269 million shares and the market value of shareholdings went down 4.89 million yuan (US$769,583), or 0.02 per cent from the previous quarter.

At the same time, insurance funds have overweighted 123 stocks from July to September. Their total shareholdings reached 811 million shares worth 1.2 billion yuan, which have increased 2.3 per cent year on year.

-- SMEs and blue-chips

Of the 68 stocks overweighted by social security funds, 33 are listed on the SME board, accounting for 49 per cent. Seven of the top 10 overweighted stocks invested in by social security funds are from the SME board.

As the Shenzhen SME price index dived more than 12 per cent from the end of June to October 25, social security funds could have incurred some losses.

Meanwhile, insurance funds have preferred to overweight shares on the main board. All of the top 10 stocks most overweighted by insurance funds come from the main board, including the Industrial and Commercial Bank of China (01398.HK; 601398.SH), the Bank of China (03988.HK; 601988.SH), and the China Petroleum and Chemical Corp. (00386.HK; 600028.SH), among others. Furthermore, the top 10 bulk-held stocks for insurance funds are all listed on the main board.

-- Buying into public services, emerging industries

In the third quarter of 2011, social security funds and insurance funds turned to shares in defensive sectors, particularly the public services sector.

Social security funds bought into six stocks in public services, while insurance funds bought 10 stocks in this sector.

Besides this, as the Chinese government continues its efforts to push economic restructuring, emerging industries such as the information technology sector, and sectors related to energy conservation and environmental protection have displayed excellent market performance, attracting social security funds and insurance funds.

According to Wind Info, social security funds own 25 stocks in the information and technology sector and the number of stocks in this sector held by insurance fund amounts to 43.

In the third quarter of 2011, social security funds added Fuchunjiang Environmental Thermoelectric (002479.SZ) to their positions, holding more than 10.8 million shares. Backed by government policy support, this stock has surged more than 10 per cent since the beginning of September.

Analysts reckon that the emerging industries will become core industries for China's economic development. Leading shares in these sectors are believed to meet investment standards and are the targets of social security funds and insurance funds.