Wu Qing, chairman of the China Securities Regulatory Commission, answers a question at a press conference during the second session of the 14th National People’s Congress in Beijing on March 6, 2024.
Wang Zhao | AFP | Getty Images
Chinese financial regulators on Thursday presented a series of measures encourage big mutual funds and state-owned insurers to buy more stocks as Beijing seeks to shore up a faltering stock market.
Large state-owned insurance companies are focused on increasing the size and proportion of their investments in mainland-listed stocks, and allocate 30% of their newly generated premiums buying shares, Wu Qing, chairman of the China Securities Regulatory Commission, said at a press conference on Thursday.
The pilot program, which is expected to start in the first half of this year, will channel at least 100 billion yuan ($13.75 billion) from insurers into long-term equity investments, Wu said. He expected the program to continue to expand and inject at least “hundreds of billions of yuan” into share buybacks each year.
Mutual funds are too were mandated to increase their holdings in mainland-listed stocks by 10% per annum, in terms of market valuation, for the next three years, he said.
A consortium of six financial regulatorsincluding the securities regulator, was the first to announce a plan on Wednesday to direct large funds, including pension funds, to buy more local stocks, with the aim of “calming the stock market,” according to a CNBC translation of the regulator’s Chinese statement.
“Having institutions like insurers holding more Chinese stocks 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 “establish more attractive long-term investment opportunities”, after the housing market crash damaged household wealth.
After the press conference, the benchmark CSI 300 index climbed over 1.8%, narrowing the index’s decline this year to about 2.7%, according to LSEG data.
While the CSI 300 registered an annual gain of 15% last year, the index closed the year down almost 12% from its highest levels of the year.
Beijing’s recent gradual stimulus measures have dashed investors’ hopes for an imminent turnaround in the ailing economy, prompting a flood of funds into safe-haven government bonds, driving yields to record lows.
In October, China’s central bank was launched the scheme of the possibility of replacement by insurers and easier access for brokers to purchase shares and relatively cheap central bank notes to help finance the purchase and redemption of shares of listed companies.
Chinese companies’ dividend payouts and share buybacks hit record levels last year, Wu said, while prompting listed companies to increase dividend payouts ahead of the Chinese 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 government bonds.” The 10-year benchmark yield 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 given their high potential for future growth, according to Lei Meng, China equity strategist at UBS.
