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China has asked state-owned insurance funds to increase investment in the stock market, pushing stocks higher on Thursday as authorities struggle to restore confidence amid a sluggish economy.
The announcement is the first time regulators have set clear investment targets for mutual funds and state-owned insurance companies.
Wu Qing, chairman of the China Securities Regulatory Commission, said on Thursday that starting this year, state-run insurance companies will be encouraged to allocate at least 30% of their annual new premium income to Chinese stocks. Mutual fund managers will be urged to increase their holdings by 10% each year for the next three years.
China has sought to expand the role of retirement funds and other long-term investments to boost its stock market.
The move was first announced on Wednesday night by six regulatory agencies including the China Securities Regulatory Commission and the People’s Bank of China, aiming to “stabilize the stock market and break the bottleneck of medium- and long-term capital entry into the market.”
Chi Lo, senior Asia-Pacific market strategist at BNP Paribas, said the announcement was a “stabilizing” move due to “a lack of private sector confidence” and “weak demand for equities.” He added that the government has a “broad policy direction” to try to use capital markets to promote growth and investment rather than relying on bank loans.
China’s CSI 300 index of stocks listed in Shanghai and Shenzhen surged in late September after the government announced support measures such as share buybacks and mortgage loan cuts. But it has since fallen 15% from its peak in early October.
The index rose 1% on Thursday, while Hong Kong’s Hang Seng Index rose 0.2%.
Hong Kong-listed Chinese insurance companies such as China Life and Ping An Insurance rose 3.7% and 2.7% respectively.
The latest announcements include further lowering fees on some mutual fund products and a crackdown on speculative trading in Chinese stocks.
It also includes measures to encourage state-owned insurance companies to focus more on long-term returns, Beijing’s latest attempt to make state-owned enterprises more efficient at a time of capital allocation concerns.
Following September’s package, investors are eyeing more stimulus measures from Beijing this year, especially to support domestic consumption.
Authorities this month expanded a program to trade in old consumer goods, such as household appliances, for new ones.
“The government has to do something to reverse confidence, but no one knows exactly what it is,” Luo said. “Beijing is doing different things, asking state-owned enterprises to buy stocks, buy real estate, and hopefully some of these measures will help reverse confidence.”
