China’s Social Security Fund & Stock Profits
The signs that the mainland Chinese stock markets are overheating are all around. The latest is that China’s national social security fund considers stock market gains of the past nine months to be profits (with the implication being that these profits are permanent). What do you think about this kind of craziness?
Short Term Gains = Sure Long Term Profits?
While this might turn out to be true, it doesn’t make since to report short term increases in one’s holdings in the market as if they were permanent increases to the resources of China’s social security fund. This is from last week’s edition of Modern Weekly:
The profits China’s social security fund have obtained through stock trading have been abundant. In the first nine months of this year, China’s social security fund earned at least 6 Billion RMB. According to a report from the board of directors of The National Council for Social Security Fund, the total funds of China’s social security fund were 241 Billion RMB at the end of the first nine months of this year. China’s social security fund’s return on investment over the last nine months has been 6.01%, with 50% of the profits coming from stock investment.
With stocks on average going up something like 60% during the same period, either China’s social security fund has a very conservative stock exposure or they badly underperformed the market. Either way, it is obvious that these gains may or may not turn out to be permanent, yet they are being hyped as if they were. This is irresponsible but not at all unique to China.