Chinese financial regulators on Thursday revealed a lot of resources urge large sovereign mutual funds and insurers to buy more shares as Beijing seeks to shore up its weakening stock market.
Large state-owned insurance companies should increase the size and percentage of their investments in mainland-listed equities, a allocate 30% of newly generated contributions to buy shares, Wu Qing, chairman of the China Securities Regulatory Commission, said at a press conference on Thursday.
The pilot program, expected to start in the first half of this year, is expected to channel at least 100 billion yuan ($13.75 billion) from insurers into long-term stock investments, Wu said. He expected the program to continue to expand and allocate at least “hundreds of billions of yuan” for stock purchases every year.
There are also investment funds committed to increasing its shares in mainland-listed shares by 10% annually in market valuation for the next three years, he said.
A consortium of six financial supervision authoritiesincluding the securities regulator, on Wednesday unveiled for the first time a plan to direct large funds, including pension funds, to buy more local shares in a move aimed at “stabilizing the stock market,” according to a CNBC translation of the regulators' statement in Chinese.
“Having more Chinese stocks held by institutions such as insurers helps reduce volatility and create a more stable, fundamentals-based trading environment,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital.
He suggested the latest initiative would help “identify more attractive long-term investment options” after the property market collapse damaged household wealth.
After the press conference, the benchmark CSI 300 index rose more than 1.8%, limiting the index's decline this year to about 2.7%, according to LSEG data.
While CSI 300 recorded annual profit of 15% last year, the index closed the year down almost 12% from its highest levels this year.
Beijing's recent piecemeal stimulus measures have dashed investors' hopes for a short-term recovery in the troubled economy, sending funds flooding into safe government bonds, sending yields plunging to record lows.
The Chinese central bank began operations in October swap facility program for insurers and brokers easier access to the purchase of shares and relatively cheap central bank bills, which help finance purchases and buybacks of shares of listed companies.
Dividend payments and share buybacks from Chinese companies reached record levels last year, Wu said, while encouraging listed companies to increase dividend payouts in the run-up to the Chinese Lunar New Year later this month.
Wu pointed out that the current CSI 300 dividend yield has reached 3%, “which is a much higher yield than the 10-year Treasury yield.” The yield on the 10-year benchmark was 1.671 on Thursday.
Thursday's announcements are expected to lead to capital inflows into China's “value stocks,” which are considered significantly undervalued due to strong future growth potential, said Lei Meng, China equity strategist at UBS.
According to Xiao Yuanqi, deputy head of the National Financial Regulation Administration, about 12% of insurers' assets are in stocks and other equity funds, equivalent to more than 4.4 trillion yuan.
According to the latest available UBS data, as of 2023, more than half of insurers' assets were held in bonds and bank deposits. The data shows that shares alone accounted for 7% of insurers' assets at the time.
“Efforts to stabilize the stock market are primarily aimed at reducing the negative impact of wealth on household consumption,” said Edith Qian, equity research strategy specialist at CGS International in Hong Kong. It predicts the policy will have “quite minimal” impact on fund flows in the A-share market, which has a free-floating market value of 78 trillion yuan.
— CNBC's Evelyn Cheng contributed to this report.