Soaring mainland equities prompt NSSF management to cut holdings The National Council for Social Security Fund (NSSF) is selling some of its mainland-listed shares, fearing the market might drop. The Shanghai Composite Index yesterday rose 1.04 per cent to a record 3,783.063 points, due to strong first-quarter earnings reported by some heavyweight blue chips. 'This market seems to be defying gravity. It's got to come down at some point. We can't risk that, especially given the nature of our fund,' said Gao Xiqing, a vice-chairman of the mainland pension fund, at a financial conference in Beijing. Shanghai's stock market has risen about 225 per cent since the beginning of last year, compared with about 90 per cent for the H-share index over the same period. Mr Gao said about 39 per cent of NSSF's assets by market value were in equities, and that the managers would try to cut that by the end of the year to about 30 per cent of the 450 billion yuan held. Under guidelines set by the fund's board for this year, it was supposed to keep to the 30 per cent level, but the NSSF is struggling to keep to the target due to the rapid rise in domestic stock prices pushing up the value of its mainland equity holdings faster than for its other assets. Valued according to purchase price, the fund has 300 billion yuan in assets, of which 54 per cent is in fixed income, about 25 per cent in domestic shares, about 10 per cent in cash, while the remainder is in private equity. However, the values and ratios have changed according to market movements. 'The market is making me nervous,' Mr Gao said. 'The market itself has been rallying for too long ... we don't want to see the market crash.' He said the fund had about US$1.6 billion invested overseas after launching a second round of foreign investment last month. The fund first awarded mandates to foreign managers in November last year. 'That's enough for us to look at it, at least for a year or two.' The NSSF also has funds that invest only in initial public offerings, selling shares a few days after they have debuted. Mr Gao said the listing mania and market speculation surrounding new issues was not sustainable for the long term, but the strategy offered good returns. 'From a typical market view, there has got to be something not right, but the regulators so far have other concerns,' he said. The NSSF, created in 2000, keeps a large portion of its holdings in cash because of the constantly changing investment rules on the mainland. Mr Gao said much of his time was spent dealing with government bureaucracy and an opaque legal system, which sometimes made his fund's methods more 'idealist' than business-minded. The rules also restrict the fund from investing in products that other pension funds invest in, such as alternative investments and property. Mr Gao cited a case two years ago when the NSSF proposed buying a building in Beijing for about one billion yuan but was prevented by the State Council, which was afraid a real estate bubble that was about to burst. 'The price of that building has doubled,' he said. The fund is racing to cover its obligations, which the World Bank estimated would exceed the NSSF's assets by nine trillion yuan in 2035. Beijing has estimated that the shortfall by then would be two trillion yuan, making the NSSF's 450 billion yuan nest egg appear paltry in comparison.