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China has told state-owned insurance funds to invest more in the country’s stock market as authorities push to restore confidence against a gloomy economic backdrop, sending shares up on Thursday.
The announcement is the first time regulators have set explicit investment targets for mutual funds and state-owned insurance companies.
Starting this year, state-owned insurers will be encouraged to allocate at least 30 per cent of new premium income each year to Chinese shares, said Wu Qing, chair of the China Securities Regulatory Commission, on Thursday. Mutual fund managers will be urged to increase their holdings by 10 per cent annually over the next three years.
China has consistently sought to expand the role of pension funds and other long-term investments to bolster its equity markets, which have struggled in recent years against a historic property slowdown that has hit economic momentum.
The move, which was first announced on Wednesday evening by six regulators including the CSRC and the People’s Bank of China, aims to “stabilise the stock market and clear the bottlenecks for the entry of medium- and long-term funds into the market”.
Chi Lo, senior Asia-Pacific market strategist at BNP Paribas, said the announcement was a “stabilising” move because of a “lack of confidence in the private sector” and “weak demand for stocks”. He added that the government had a “broad policy direction” of trying to use capital markets to promote growth and investment, rather than relying on bank lending.
China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks soared in late September after the government announced support measures, including funding for stock buybacks and mortgage cuts. But it has since fallen 15 per cent from a peak in early October.
The index jumped 1 per cent on Thursday, while Hong Kong’s Hang Seng benchmark rose 0.2 per cent.
Chinese insurance companies listed in Hong Kong such as China Life Insurance and Ping An Insurance rose 3.7 per cent and 2.7 per cent, respectively.
The latest announcement includes further fee cuts to some mutual fund products and a crackdown on speculative trading of Chinese shares.
It also includes measures to give state-owned insurance companies incentives to focus more on long-term returns, the latest attempt from Beijing to improve the efficiency of state-run enterprises amid concerns over capital allocation.
Investors are watching for more signs of stimulus from Beijing this year after the September package, especially measures to support domestic consumption.
Authorities this month expanded a scheme to trade in old consumer goods, such as household appliances, for new ones.
“The government has to do something to turn around confidence, and nobody knows exactly what this something is,” said Lo. “Beijing is doing different things, asking state-owned companies to buy the stock market, buy up property, and hopefully some of these things will help to turn around confidence.”
