Here’s a way to help prop up the Chinese stock market (which, in case you had forgotten, is still in bear market territory).
How about forcing insurance companies to buy more equities?
From North Square Blue Oak:
The China Insurance Regulatory Commission has stated that there will be a major adjustment to the use of insurance capital, with the range of investment channels widened and the proportion of assets allocated to investment in A shares, Hong Kong stocks and unsecured bonds increased. Specifically, the ceiling for equity and equity fund investments will be increased to 20%, whereas currently there is a 20% ceiling on equity, bond and currency funds combined. The ceiling for investment in unsecured bonds will also be increased from 15% to 20% and the rating requirement for bond investment will be lowered from AA to A. Meanwhile, investment in Hong Kong stocks will expand from red chips and H stocks to the main board markets
And that’s not all:
Further support for the equity markets was shown by the number of funds to be issued this week, with 20 launched, almost twice that of previous weeks, of which five are bond funds and 15 stock funds. To date, 43 funds have been established this year, raising 73bn yuan, lower than the 140bn yuan raised in the same period last year. The increase in equity allocation for insurance companies and the doubling of the number of funds launched provide an important level of support to the equity markets at a time of relative weakness. This appears to be designed to stabilise the markets ahead of the major Agricultural Bank of China IPO and other capital raisings expected over the next few months. In addition, the relaxation of the rating requirement for bond investment will support the development of the corporate bond market, which is currently fairly limited.
Now, the Chinese government needs the stock market to remain buoyant because of the RNB150-200bn ABC flotation and the RNB287bn of bank capital raising that are coming down to the slipway. And without that cash, the banks won’t be able to lend the amounts needed to support economic growth.
The recent performance of the Shanghai Composite Index, for reference:
Related links:
Eclectica May 2010 Manager commentary – Long Room
China, A-shares and double-dip recessions – FT Alphaville
Stop the Chinese steamroller, I want to get off – FT Alphaville