China is urging local mutual funds and insurers to increase their stock purchases in a bid to stabilize its faltering equity markets, which have been under pressure from fears of a prolonged economic slowdown and escalating trade tensions. In a press briefing on Thursday, Wu Qing, chairman of the China Securities Regulatory Commission (CSRC), outlined new directives aimed at shoring up investor confidence.
Mutual funds are now required to increase their holdings of onshore equities by at least 10% annually over the next three years. Meanwhile, large state-owned insurers must invest 30% of their new policy premiums in the domestic equity market starting in 2025. These measures are part of China’s broader strategy to counteract the impact of potential tariffs and a weakening economy.
Stock Market Reaction and Expert Insights
The news initially sparked optimism in China’s stock market, with the benchmark CSI 300 Index surging by as much as 1.8% in early trading, before closing with a modest gain of just 0.2%. Conversely, the Hang Seng China Enterprises Index, which tracks mainland-listed stocks in Hong Kong, saw a 0.5% decline.
Jason Chan, Senior Investment Strategist at Bank of East Asia in Hong Kong, suggested that the policy could benefit Chinese equities, particularly state-owned enterprises with high dividend yields. However, Chan also cautioned that the measures are designed more to stabilize the market rather than provide a significant boost, which would require more aggressive fiscal stimulus.
Long-Term Investment Plans for Insurers
In addition to these directives, China is expanding its trial program for long-term equity investments by insurers. Wu announced that the second phase of this program would begin in the first half of the year, with at least 100 billion yuan ($13.7 billion) earmarked for the initiative. These long-term investments are expected to increase the flow of capital into the domestic market.
Vice Finance Minister Liao Min also indicated that the government plans to introduce further reforms to give state-controlled insurers more flexibility in managing these investments, offering them a broader mandate to deploy funds in the local stock market.
Insurance Stocks Surge on Policy Expectations
In response to these announcements, insurance stocks saw an immediate uptick. A Bloomberg index tracking Chinese insurers listed in Hong Kong rose by 2%, fueled by speculation that the new measures will drive higher returns for insurers managing long-term funds.
Despite these moves, concerns remain over the broader economic environment. China’s equity markets have faced ongoing challenges in recent months, with traders wary of the economic slowdown and the risk of higher tariffs under the new U.S. administration. These fears were compounded by the fact that previous stimulus efforts from Beijing have been viewed as incremental and insufficient to reverse the negative market sentiment.
Broader Market Pressures and Government Actions
The MSCI China Index entered a bear market earlier this month, reflecting the broader strain on Chinese equities. The CSI 300 Index, which tracks major A-share stocks, had dropped 3.5% year-to-date through Wednesday, making it one of Asia’s worst performers.
On Wednesday, China introduced a range of measures aimed at stabilizing the stock market, including increasing pension fund investments in domestic stocks and setting up a liquidity swap facility for securities firms, funds, and insurers to support equity purchases. The market also reacted to comments from U.S. President Donald Trump, who reiterated his stance on a potential 10% tariff on Chinese goods, adding to the uncertainty.
Gary Tan, Portfolio Manager at Allspring Global Investments, characterized the latest announcements as “incrementally positive” for the A-share market, though he cautioned that they are not a “game changer.” Tan expects that high-dividend domestic stocks will be the primary beneficiaries of the increased investment flows.
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