NPS wants to buy more shares in Chinese yuan

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NPS wants to buy more shares in Chinese yuan

Korea’s National Pension Service, the country’s biggest investor, plans to seek approval to buy more yuan-denominated Chinese stocks after using up the initial quota of $100 million it received in March.

The $316 billion pension fund plans to use that allotment by September and will pick two managers soon to handle the investments, Chairman Jun Kwang-woo said in an interview in Seoul Monday. The fund also aims to expand investments to Chinese bonds and so-called alternative investments later, he said, without being more specific.

“Given the size of our portfolio and the size of the first tranche, I think it’s natural to increase the quota down the road,” Jun, 63, said, without detailing how much more the fund plans to apply for. “I do expect some bumps in the road to further growth. But that doesn’t give an excuse to understate the true potential of the economy.”

Jun’s comments come as data show China’s economy, the world’s second largest, is slowing and the nation’s stocks get cheaper. The benchmark Shanghai Composite Index has fallen 61 percent from its October 2007 record and traded for 12.7 times reported earnings as of yesterday, or 61 percent below the average level of 32.4 since 1997.

China said Saturday it will cut the amount of cash that banks must set aside as reserves for the third time in six months after data showed that industrial production grew the least since 2009 in April and new yuan loans missed estimates. International interest in yuan-denominated assets is rising as China’s economy expands and its government accelerates the opening of its capital markets.

Foreign institutions must get a license as a Qualified Foreign Institutional Investor (QFII) from the China Securities Regulatory Commission (CSRC) first before they obtain quota from the State Administration of Foreign Exchange to buy yuan-denominated stocks and bonds. The CSRC has increased the quotas for QFII to $80 billion from $30 billion, according to a statement in April. China had approved a combined $26 billion of investment quotas for 141 QFIIs as of May 8.

The Bank of Korea, the nation’s central bank, said in March it received permission to invest $300 million in China, while Korea Investment, the sovereign wealth fund, said the same month it was granted a quota of $200 million.

The Shanghai Composite Index was the worst performer among the world’s 10 biggest markets in 2010 and 2011, tumbling a combined 33 percent, as the central bank increased interest rates and lenders’ reserve ratios to tame inflation. China’s growth rate slowed to 8.1 percent in the first quarter, the slowest pace in almost three years. Bloomberg

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