Texas Teachers’ Retirement System Moves to Distance Pensions From Chinese Stocks

Investors monitor stock price movements at a securities company in Beijing on June 15, 2016. Greg Baker/AFP/Getty Images

The largest public retirement system in Texas is moving to remove Chinese companies from the list of stocks it invests in as part of its pension fund for teachers.

The Teacher Retirement System of Texas (TRS) gained approval last month to move forward with a new benchmark that proportionally mixes two emerging markets indexes, including one with China and one without.

The move will cut the $184 billion pension fund’s exposure to Chinese stocks in half.

TRS previously stated that it was pursuing this course of action because the MSCI Emerging Markets Index that it used gave an “outsized weight” to China. As such, it sought to improve the diversification of the benchmark and reduce China’s allocation.

China currently represents 35.4 percent of the weight in the MSCI Emerging Markets Index and accounts for 3 percent of TRS’ total exposure.

The new benchmark will reduce China’s weight in the index to 17.7 percent, thus lowering TRS’ exposure to China to 1.5 percent, according to Bloomberg, which first reported the shift.

The change was approved at a previously unreported meeting in September. There is a six-month transition period to adjust the current portfolio accordingly, intended to reduce negative price impact as Chinese markets face a prolonged downward trend.

Several factors are currently weighing on Chinese markets, including the heavy hand of Chinese Communist Party (CCP) leader Xi Jinping, whose COVID-19 lockdowns have shuttered previously bustling cities for nearly two years.

Also notable are the U.S. sanctions on CCP officials over the alleged genocide of the Uyghurs in China’s Xinjiang region, and the Biden administration’s unprecedented move to limit the types of semiconductors that can be sold to China—a move that has caused Chinese tech stocks to shrink.

While not directly related to current tensions between China and the United States, the idea to potentially restrict exposure to Chinese markets in public pension funds was floated by the Trump administration in 2019.

TRS’ new benchmark is expected to be fully implemented by the beginning of March next year.

Reuters contributed to this report.