Beijing tells insurers to put more money into Chinese stocks

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Chinese authorities have sought to boost the stock market and restore confidence in the world’s second-largest economy by telling local insurance companies and mutual funds to invest more in domestic stocks.

Regulators have told state insurers to invest a minimum of 30 per cent of their new policy premiums in local shares, while mutual funds have been told to increase these shareholdings by 10 per cent annually for the next three years. This is the first time regulators have set an explicit target for investments.

The policy shift could mean that up to Rmb500bn ($68bn) could flow into the market from China’s three biggest state-owned insurers alone, according to a Financial Times analysis of last year’s policy premiums. Insurers already hold shares worth Rmb4.4tn, said regulators.

The mainland’s CSI 300 index rose as much as 1.8 per cent on Thursday, almost erasing losses incurred on Wednesday after the new US administration threatened tariffs on Chinese exports.

Geopolitical tensions, a cooling economy and a property market crisis have in recent years hit demand for Chinese equities.

The latest move, first announced on Wednesday evening by regulators including the China Securities Regulatory Commission 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.

The CSI 300 index 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.

In September, authorities also announced a pool of $100bn to lend to companies to enact share buybacks and to lend to asset managers, insurers and brokers to buy local equities.

The index was up 1 per cent on Thursday afternoon, while Hong Kong’s Hang Seng benchmark fell 0.5 per cent.

Chinese insurance companies listed in Hong Kong, such as China Life Insurance and Ping An Insurance, rose 2.3 per cent and 1.9 per cent, respectively.

The latest announcement included further fee cuts to some mutual fund products and a crackdown on speculative trading of Chinese shares.

It also included 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.”