An investor checks stock prices at a brokerage in Fuyang, Anhui Province. (Photo by Lu Qijian/For China Daily)
CBIRC considers higher threshold for investments in equity assets
Central regulators are set to allow insurance companies to plow more funds into the Chinese A-share market, stabilizing it through long-term capital inflows.
A spokesperson for the China Banking and Insurance Regulatory Commission said in a reply to Financial Times that they are studying the possibility of raising the ceiling for insurance companies to invest in equity assets.
The moderate relaxation on insurance capital being invested in equities will bring long-term and stable development to the Chinese capital market, the spokesperson said.
Although the exact higher ratio has not been decided, industry insiders and experts said it may reach up to 40 percent. Under current rules, an insurance company's book balance of its investment in equities should be no more than 30 percent of the company's total assets registered by the end of the last quarter.
Xiangcai Securities analyst Pan Yuzhang said some small and medium-sized insurance companies have seen their equities investment ratio approach the 30 percent limit. As these insurers shoulder higher costs in terms of liabilities, they usually look for increased profits for their investment and are the ones that urgently need an increase in the limit.
Fu Lichun, the research director of Northeast Securities, said though increasing the limit to 40 percent will be quite high, insurance assets should seek long-term and stable profits. But given the volatility of stock markets over the past few years, it will not be easy to seek such stable income, including dividends, from the A-share market.
But he added that with investment from insurance capital set to be increased, the flow of funds could help lower volatility in capital markets and play an important role in the supply-side reform of the financial industry.
Statistics from the CBIRC showed about 49.2 percent of insurance capital was invested in fixed income assets last year, while stocks and related funds only took 11.7 percent of the total.
By the end of the first quarter of 2019, the total investable capital balance of Chinese insurance companies came in at 17 trillion yuan ($2.5 trillion), of which 12.4 percent, or 2.1 trillion yuan, were invested in stocks and security funds, the commission data showed.
Great Wall Securities estimated that an additional 170.5 billion yuan of capital will flow into the A-share market once the allowed investment ratio for insurance capital is increased by 1 percentage point.
The regulators raised the ratio for allocated insurance capital in equities to 20 percent in August 2010. It was further increased to 30 percent in July 2015.
Founder Securities analysts wrote in a note the A-share market rebounded in six to 12 months after limits were relaxed. The companies where insurers made large investments would demonstrate the most robust pickup in their performance, they said.
The further opening up of financial markets has been advancing steadily.
Li Chao, vice-chairman of the China Securities Regulatory Commission, said at a forum held in Hong Kong on Monday that the A-share market has been successfully included in international indexes such as the MSCI and FTSE, reflecting rising interest by international investors in Chinese markets.
That interest and capital flows will rise with a move to relax the trading limit on stock index futures, he added.
The benchmark Shanghai Composite Index climbed 0.86 percent to close at 2852.13 points on Monday, while the Shenzhen Component Index gained 1.48 percent to close at 8711.79 points.
