China allows insurers to invest in local bourses

[aRNoLD]

China on Monday issued the final approval for local and joint venture insurance companies to invest assets directly into Chinese shares and bonds, unleashing a potential $6.7bn in funds for the struggling stock market.

The ruling will spur local insurance companies to accelerate the creation of their own fund management subsidiaries, both to manage premium income but also to prepare themselves to compete for mandates to run pension monies in the future.

In the short-term, however, the injection of extra funds into equities might provide much-needed ballast for a stock market that has developed chronic credibility problems with investors.

“It’s a long-term decision for the good of the market, but the timing of it hints at trying to boost the local stock market (in the near term),“ said Stuart Leckie, a Hong Kong-based pensions consultant.

The 5 per cent that insurance companies will be able to put directly into the market is on top of the 15 per cent of assets that can already go into stocks and bonds through mutual funds, a spokesman for China’s insurance regulator said.

“The new regulations will further aid the development of the country’s insurance and stock markets, disperse risks and offer new investment channels for premiums,” the China Insurance Regulatory Commission said.

Most of the insurers’ funds are now invested in low-yielding bank deposits, which have become even less attractive with the recent rise in inflation. The 20 per cent ceiling of funds invested in equities puts Chinese insurers broadly in line with the amount of assets that US companies have in shares, according to Mr Leckie.

The insurers will be limited to holding a maximum 30 per cent in any listed company and will be barred from buying shares in enterprises whose share price has doubled in the previous 12 months.

The announcement by the State Council, China’s cabinet, and the securities and insurance regulators in Beijing, is one a flurry of initiatives announced in recent weeks to revive the capital markets.

More foreign funds have been approved to buy Chinese shares and local securities companies are being allowed greater freedom to raise funds to expand their businesses.

The central government has been under pressure to address the longstanding problems of the stock market following complaints that it has neglected the sector in favour of focusing exclusively on banking reform.

However, the government has not released any measures to tackle the market’s single biggest problem - the state’s continuing majority holding in most listed enterprises and the poor quality of traded companies.

Every effort by the authorities to begin to unwind the state’s holdings, which account for about 70 per cent of all shares, has precipitated a crisis in the market.

Investors fear that any sell-off of state shares will swamp the market and flatten prices. Chinese and foreign joint venture insurance companies have total assets of Rmb1,100bn ($133bn), with premium income increasing rapidly, at a growth rate of about 20 per cent year-on-year.

From December, foreign joint ventures will be able to compete on an equal footing with local companies, which is expected to intensify competition and keep premium incomes on a steep upwards curve.

With the bankruptcy of many state enterprises, ordinary Chinese have a greater incentive than ever to take out policies to provide for their own retirement.

But unless the stock market begins to offer returns that reflect the strength of the Chinese economy, the investment market will continue to be skewed towards property.

The failure of policies to restore confidence in the stock market will also leave banks as overwhelmingly dominant in the provision of capital for business, something that has left China with a high level of bad loans.
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[aRNoLD]

bourses
stock exchange

ruling
An authoritative or official decision: a court ruling.

mandates
A command or an authorization given by a political electorate to its representative.

equities
[P]tech firm's ordinary shares, on which no fixed amount of interest is paid
（无固定利息的）公司普通股

ballast
Fig.: That which gives, or helps to maintain, uprightness, steadiness, and security.
It [piety] is the right ballast of prosperity. --Barrow.


take out
To obtain as an equivalent in a different form: took out the money owed in services.

chronic
Of long duration; continuing: chronic money problems.

mutual funds
An investment company that pools money from share-holders and invests in a variety of securities, including stocks, bonds, and money market instruments. A mutual fund stands ready to buy back (redeem) its shares at their current net asset value, which depends on the total market value of the fund’s investment portfolio at the time of redemption. As an open-end investment, a mutual fund continuously offers new shares to investors.
互惠(或共同)基金(mutual fund)，也称开放式基金(open-end fund)，由投资公司负责管理，其投资组合涵盖多种证券形式，包括：股票、债券或货币市场工具。
http://www.brill.com/newbie.html

flurry
A sudden burst or commotion; a stir: a flurry of interest in the new product; a flurry of activity when the plane landed.

footing
A basis or foundation: a business begun on a good footing.

precipitate
To cause to happen, especially suddenly or prematurely.