China’s financial regulators on Thursday unveiled a slew of measures to urge large state-owned mutual funds and insurers to purchase more shares, as Beijing seeks to bolster the faltering stock market.
Big state-owned insurance firms are guided to raise the size and proportion of their investment in shares listed on the mainland, and to allocate 30% of their newly generated premiums to buying stocks, Wu Qing, chairman of the China Securities Regulatory Commission said at a press conference on Thursday.
A pilot program, due to kick off in the first half of this year, will channel at least 100 billion yuan ($13.75 billion) from insurers to long-term stock investment, Wu said. He expected the program to continue being expanded and inject at least “hundreds of billions of yuan” every year into stock purchases.
Mutual funds are also mandated to raise their holdings in mainland-listed shares by 10% annually, in terms of market valuation, for the next three years, he said.
A consortium of six financial regulators, including the securities regulator, first floated the plan on Wednesday to direct large funds, including pension funds, to buy more local shares, aimed at “steadying the stock market,” according to CNBC’s translation of a statement in Chinese from the regulators.
“Having institutions like insurers hold more China’s equities helps to lower volatility and create a more stable trading environment based on fundamentals,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital.
He suggested the latest initiative will help “establish more attractive long-term investment options,” after a meltdown in the real estate market damaged households’ wealth.
Following the press conference, the benchmark CSI 300 index climbed over 1.8%, narrowing the index’s drop this year to around 2.7%, according to LSEG data.
While the CSI 300 registered an annual gain of 15% last year, the index closed the year by falling nearly 12% from its highest levels of the year.
Beijing’s recent piecemeal stimulus measures have dashed investors’ hope for a near-term turnaround in the ailing economy, prompting a flood of funds into the safety of government bonds, driving down yields to record lows.
In October, China’s central bank launched a swap facility scheme to give insurers and brokers easier access to buy stocks and relatively cheap central bank bills to help finance listed companies’ share purchases and buybacks.
Chinese companies’ dividend payout and share buybacks last year hit record highs, Wu said, while encouraging listed companies to ramp up dividend payouts in the run up to the China’s Lunar New Year later this month.
Wu pointed out that the current dividend yield of the CSI 300 reached 3%, “which is significantly higher than the yield of the 10-year treasury bonds.” The 10-year benchmark yield stood at 1.671% on Thursday.
Thursday’s announcements are expected to lead to a capital influx into Chinese “value stocks,” which are considered significantly undervalued given great potential for future growth, according to Lei Meng, China equity strategist at UBS.
Around 12% of the insurers’ assets are in stocks and other equity funds, the equivalent of more than 4.4 trillion yuan, according to Xiao Yuanqi, deputy head of National Financial Regulatory Administration.
More than half of the insurers’ assets were in bonds and bank deposits as of 2023, according to the latest available data from UBS. Stocks alone accounted for 7% of insurers’ assets at the time, the data showed.
“The effort to stabilize the stock market primarily seeks to reduce the negative wealth effect on household consumption,” said Edith Qian, equity research strategist at CGS International Hong Kong. She anticipates the policy to deliver a “quite minimal” impact on fund flows in the A-share market with 78-trillion-yuan free-float market value.
— CNBC’s Evelyn Cheng contributed to this report.