China Eases Investment Rules for Insurers in Bid to Boost Flows Into Stocks

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China has taken a move that effectively allows insurance firms to make longer-term investment in shares, adding to a drumbeat of support measures to revitalize the country’s stock market.

The Ministry of Finance will from now on evaluate insurers’ return on net assets based on a combination of a three-year cycle and a one-year time frame, instead of just the latter previously, it said in a notice released Monday. The ministry said the change, effective immediately, is aimed at guiding long-term capital to play a stronger role of market “stabilizer”.

The move is the latest in a series of steps taken by policymakers to prop up a stock market that has become one of the world’s worst performers this year. The onshore CSI 300 index fell again Tuesday morning, ending a five-day winning streak after fresh weakness in manufacturing and services activity revived concerns about China’s economy.

“This is an opportune time for insurance funds to add positions in stocks, especially following buying by Central Huijin and the special approval of issuances of sovereign bonds, just as fundamentals are starting to improve,” said Li Zhan, chief economist at China Merchants Fund Management Co.’s research department.

The ministry’s announcement could drive about 2.6 trillion yuan ($355 billion) into stocks and equity mutual funds, if insurers raise their equity investment by three percentage points and deploy 16% for such investment, Li estimates.

China has intensified efforts to restore investor confidence in a languishing stock market in recent months. They included buying of exchange-traded funds by Central Huijin Investment Ltd., a unit of the country’s sovereign wealth fund, as well as purchases by major mutual funds of their own equity-focused products, lower transaction costs, and tighter oversight of short selling.

The finance ministry said in the same notice that insurance firms should set reasonable investment targets and properly balance risk and return, as well as refrain from making high-risk investments. Those that don’t meet certain criteria in areas including solvency are prohibited from making new investment.

Under current regulations, China’s insurance firms are permitted to invest between 10% and 45% of their total assets in equities based on their solvency ratios.

Photograph: Buildings in Shanghai, China, on Sunday, Oct. 29, 2023. President Xi Jinping is set to further tighten his control of China’s $61 trillion financial industry as he gathers state leaders and top bankers to set the direction over the next five years. Photo credit: Qilai Shen/Bloomberg