The mainland's A-share market is expected to be rangebound this year, a senior official with the country's pension fund said.
The performance of mainland stocks was expected to improve with the economic recovery, but a strong rally could be ruled out, said Yu Gesheng, a vice-chairman of the National Council for Social Security Fund, which has 890 billion yuan (HK$1.1 trillion) of assets under management.
"There is small likelihood that the Shanghai Composite Index will rebound to 5,000 to 6,000 points this year as the economic recovery is still uneven," Yu told the South China Morning Post.
The index eased 1.04 per cent to 2,286.61 points yesterday.
The mainland's stock market was among the world's worst performers last year, with the Shanghai benchmark gaining a mere 3.17 per cent. The leadership transition in November and the anticipated investment acceleration after government reshuffles this year generated hopes that economic growth would pick up, leading to a rally in the winter.
To boost demand for stocks, the regulator said last week that it would allow Hong Kong, Macau and Taiwan residents to open A-share accounts and directly invest in the market soon.
"The measure could bolster market confidence," Yu said. "However, it will take time for the market to become stronger and listed companies to be of a better quality."
The mainland's economic growth is set to slow to single digits in the coming years. This, together with the gloomy outlook of European economies, which dampens demand for exports from the country, was expected to weigh on its stock market this year, Yu said.
The security fund had about 35 per cent of assets invested in domestic and foreign stock markets, mainly in the mainland market, at the end of last year, he said. Its net investment in the A-share market was more than 40 billion yuan last year.
At the end of 2012, more than 40 per cent were invested in fixed-income products and 15 per cent in direct equity investment and private-equity funds. The annual investment return last year was 7 per cent, Yu said.
The fund, set up in 2000, serves as a strategic reserve fund accumulated by the central government to support future social security expenditures. It has also been entrusted to manage the individual account fund of several provinces. The fund has achieved an annualised return of 8.41 per cent in the 11 years until 2011.
"Hopefully, we will have 3 trillion yuan of assets under management by 2020, which is necessary and likely," Yu said.
The fund started with 20 billion yuan from the Ministry of Finance. Later contributions came from fiscal appropriation, transfer of shares of state-owned enterprises when they listed, lottery sales and investment returns.
The 3 trillion yuan target was set after considering possible increased contribution from the ministry and state firms in the future, which was needed to meet the disbursement demand in the fast-ageing country, Yu said.
As the ageing problem becomes more severe, the burden of social security expenditures will become heavier. It was therefore necessary to have a stronger reserve pension fund, he said.
By 2033, the pension fund gap could grow to 68.2 trillion yuan, or 38.7 per cent of the estimated gross domestic product, if the mainland's population and pension policies remain the same, according to a research report by Fudan University last year.