Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
China’s financial regulators on Thursday he unveiled a host of measures to urge large state-owned mutual funds and insurers to buy more shares, as Beijing seeks to strengthen the stock market.
The large state-owned insurance companies are driven to increase the size and proportion of their investment in shares listed on the continent, and to allocate 30% of their first nine generated to buy shares, Wu Qing, chairman of the China Securities Regulatory Commission said in a press conference on Thursday.
A pilot program, due to be launched 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. The program is expected to continue to be expanded and inject at least “hundreds of billions of yuan” each year into stock purchases.
Mutual funds are too sent to raise their shares in the continental-listed shares by 10% per year, in terms of market valuation, for the next three years, he said.
A consortium of six financial regulatorsincluding the securities regulator, first floated the plan on Wednesday to direct large funds, including pension funds, to buy more local shares, aimed at “stabilizing the stock market”, according to CNBC’s translation of a statement in Chinese from the regulators .
“Having institutions like insurers hold more China stocks helps reduce volatility and create a more stable business environment based on fundamentals,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital.
He suggested the latest initiative would help “establish more attractive long-term investment options” after a housing market crash damaged household wealth.
After the press conference, the benchmark CSI 300 index rose more than 1.8%, reducing the index’s fall this year to about 2.7%, according to LSEG data.
While the CSI 300 recorded a 15% annual gain last year, the index closed the year down nearly 12% from its highest levels of the year.
Beijing’s recent piecemeal stimulus measures have dashed investors’ hopes for a near-term turnaround in the ailing economy, prompting a flood of funds into the safety of government bonds, driving yields to record lows record.
In October, the central bank of China launched a swap facility scheme to give insurers and brokers easier access to buy shares and bills of the central bank relatively cheap to help finance the purchase of shares of listed companies and the purchase.
Last year, Chinese companies’ dividend payouts and share buybacks hit record highs, Wu said, while encouraging listed companies to increase dividend payouts in the run-up to China’s Lunar New Year. later this month.
Wu pointed out that the current dividend yield of the CSI 300 has reached 3%, “which is significantly higher than the yield of 10-year treasury bonds.” The benchmark 10-year yield stood at 1.671% on Thursday.
Thursday’s announcements are expected to lead to an inflow of capital into Chinese “value stocks,” which are considered significantly undervalued given their great potential for future growth, according to Lei Meng, China equity strategist at UBS.
About 12% of 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 the National Financial Regulatory Administration.
More than half of insurers’ assets were in bonds and bank deposits by 2023, according to the latest data available from UBS. The shares only represent 7% of the insurer’s assets at the moment, the data showed.
“The effort to stabilize the stock market mainly seeks to reduce the negative effect of wealth on household consumption,” said Edith Qian, equity research strategist at CGS International Hong Kong. She anticipates the policy to provide a “fairly minimal” impact on fund flows in the A-Share market with a market value of 78 trillion yuan.
— CNBC’s Evelyn Cheng contributed to this report.
