South Korea's National Pension Service (NPS), the world's fourth largest pension fund, announced earlier this month that it will begin investing in yuan-denominated Chinese assets in order to diversify its portfolio.

The scheme can go ahead with its plans after it obtained landmark approval from China allowing it to invest in Chinese securities.

The approval was officially granted 9 January by the China Securities Regulatory Commission (CSRC) under the Qualified Foreign Institutional Investors (QFII) scheme, Reuters reports the NPS as saying.

According to data held by Pension Funds Online the scheme currently has £293bn in assets under management as of the end of November and thereby is the fourth largest pension scheme in the world.

NPS, which is also the largest South Korean institutional investor, said in a statement quoted by Reuters that the QFII approval was the first of its kind given to one of the world's top four pension funds.

It will allow the scheme to focus on investments beyond the domestic market and diversify its overseas investments to compensate for the U.S. dollar's current weakness.

The scheme will raise the fund's holding of foreign stocks and bonds as a proportion of total assets from 12.9% at the end of November to about 20% by the end of 2016.

China launched the QFII scheme in 2002. It allows authorised foreign institutional investors to convert foreign currency in order to trade yuan-denominated stocks and bonds through a set quota.

First published 09.01.2012

azeevalkink@wilmington.co.uk