Boosting China’s Stock Market: A New Era of Investment
Stabilizing the Market with Institutional Investors
In a bid to revitalize China’s faltering stock market, the country’s financial regulators have introduced a series of measures to encourage large state-owned mutual funds and insurers to increase their share purchases. This move is expected to inject hundreds of billions of yuan into the market every year, providing a much-needed boost to the economy.
Insurers to Allocate 30% of Premiums to Stock Investment
Wu Qing, chairman of the China Securities Regulatory Commission, announced that big state-owned insurance firms will be guided to raise the size and proportion of their investment in mainland-listed shares. Furthermore, they will be required to allocate 30% of their newly generated premiums to buying stocks. This pilot program, set to launch in the first half of this year, is expected to channel at least 100 billion yuan ($13.75 billion) into long-term stock investment.
Mutual Funds to Increase Holdings by 10% Annually
Mutual funds have also been mandated to raise their holdings in mainland-listed shares by 10% annually, in terms of market valuation, for the next three years. This move is expected to increase the stability of the market and provide a more attractive long-term investment option for investors.
Expert Insights: Lowering Volatility and Creating a Stable Trading Environment
Eugene Hsiao, head of China equity strategy at Macquarie Capital, believes that having institutions like insurers hold more Chinese equities will help to lower volatility and create a more stable trading environment based on fundamentals. This initiative is expected to establish more attractive long-term investment options, particularly after the recent meltdown in the real estate market damaged households’ wealth.
Market Reaction: CSI 300 Index Climbs 1.8%
Following the press conference, the benchmark CSI 300 index climbed over 1.8%, narrowing the index’s drop this year to around 2.7%. While the CSI 300 registered an annual gain of 15% last year, the index closed the year by falling nearly 12% from its highest levels of the year.
Beijing’s Stimulus Measures: A Shift in Investment Strategy
Beijing’s recent piecemeal stimulus measures have prompted a flood of funds into the safety of government bonds, driving down yields to record lows. However, the latest initiative is expected to lead to a capital influx into Chinese “value stocks,” which are considered significantly undervalued given their great potential for future growth.
Record-High Dividend Payouts and Share Buybacks
Chinese companies’ dividend payout and share buybacks last year hit record highs, according to Wu Qing. The current dividend yield of the CSI 300 reached 3%, significantly higher than the yield of the 10-year treasury bonds. This trend is expected to continue, with listed companies encouraged to ramp up dividend payouts in the run-up to the China’s Lunar New Year later this month.
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