CalPERS to allow stock investments in China

The California Public Employees’ Retirement System said Monday that it would allow its investment managers in emerging-market stocks to buy shares in China and six other countries that previously were off-limits.

The move comes after China’s stock market has zoomed this year. A key index of the Shanghai market is up 102% year to date.

CalPERS, the nation’s biggest public pension fund, had banned stock investments in the seven countries because they failed to qualify under a scoring system that includes factors such as political stability and labor practices. Colombia, Egypt, Morocco, Pakistan, Russia and Venezuela also were on the do-not-buy list.

The Sacramento-based fund said it would keep the scoring system, but its investment managers could buy shares of individual firms in those countries that met certain standards, even if the countries didn’t.

“By allowing investment in selected public companies that meet our standards, we could encourage other [companies] to also qualify by raising their standards to meet our investment criteria,” Rob Feckner, CalPERS’ board president, said in a statement.

The decision also could allow CalPERS to cash in on hot stocks in the seven countries -- particularly in China, where the economy has been booming.

The move was championed by state Controller Steve Westly, a member of CalPERS’ board.

A Westly spokesman said the controller believed that China was a “glaring omission” on CalPERS’ list of investment possibilities.

CalPERS said its investment managers had identified 28 stocks in the seven countries that might qualify for the fund under the new policy.

The fund has $4.8 billion invested in emerging markets. That is 3.5% of its $136-billion stock portfolio, the bulk of which is in U.S. shares. The fund overall has $225 billion in assets.

CalPERS also said Monday that it had relaxed restrictions on five of its contracted investment management firms, allowing them to engage in short-selling strategies in addition to buying and holding stocks.

Short selling entails betting that a stock’s price will decline. An investor borrows the shares and sells them, hoping to get the stock at a lower price later on to replace the shares.

A CalPERS spokeswoman said this wasn’t the first time the fund had allowed short selling.