In a bid to support the country’s flagging stock market, Chinese financial regulators unveiled a series of new measures on Thursday urging state-owned mutual funds and insurers to increase their investments in domestic equities.
This move comes as China seeks to stabilize its market amid ongoing economic challenges and declining bond yields.
As part of the initiative, large state-backed insurance companies are being directed to invest a minimum of 30% of their newly generated premiums into Chinese A-shares. The aim is to increase both the size and proportion of their equity holdings. Additionally, mutual funds are required to raise their holdings in mainland-listed stocks by 10% annually, based on market valuation, for the next three years.
Wu Qing, chairman of the China Securities Regulatory Commission, announced that a pilot program will commence in the first half of this year, channeling at least 100 billion yuan ($13.75 billion) from insurance companies into long-term stock investments. The program is expected to expand in the coming years, injecting hundreds of billions of yuan annually into the stock market.
This new push to increase institutional investments follows a series of steps by a consortium of six financial regulators, including the securities commission, who earlier this week called for large state-backed funds to buy more local shares in an effort to “steady the stock market.”
Analysts believe that the move will help stabilize the market by providing more long-term investment options, especially after the real estate sector’s downturn and declining household wealth. Eugene Hsiao, head of China equity strategy at Macquarie Capital, noted that such institutional investments could reduce market volatility and provide a more stable trading environment.
The announcement led to a temporary boost in the benchmark CSI 300 index, which gained over 1.8%, narrowing its year-to-date decline to around 2.7%. Despite this, concerns over China’s broader economic outlook persist, with analysts cautioning that financial and stock market-related stimulus might have a limited impact in the long run.
China’s financial markets have been under pressure from various challenges, including geopolitical tensions, a slowing economy, and a crisis in the property sector. In response, Beijing has rolled out several stimulus measures, such as making it easier for insurers and brokers to buy stocks and facilitating stock buybacks.
While some experts remain optimistic about the policy’s potential to boost the market, others, like Edith Qian, equity research strategist at CGS International Hong Kong, believe that the effect on fund flows might be minimal, given the vast size of the A-share market and the relatively modest scale of the new measures.
With input from CNBC, Bloomberg, the Financial Times, and Reuters.
