stock market Photo:VCG

Chinese financial regulators on Thursday further elaborated on an implementation plan issued a day earlier aimed at boosting the inflow of long-term funds into the stock market,MKsport saying that they will guide major state-owned insurers to increase both the scale and proportion of their investments in A-shares.

Major state-owned insurers will strive to allocate 30 percent of their new premiums annually to invest in A-shares, starting 2025. It is expected to inject hundreds of billions of yuan in long-term funds into the equity market each year, Wu Qing, head of the China Securities Regulatory Commission (CSRC), told a press conference on Thursday.

Insurance funds are characterized by stable sources, large scale, and long payout cycles, making them a typical source of "long-term capital" and a key player in the capital market, Vice Minister of Finance Liao Min said.

As for other arrangements, the second round of pilot programs for long-term equity investments by insurance funds, with a scale of no less than 100 billion yuan ($13.74 billion), will be rolled out in the first half of 2025, Wu said.

Also, public offering funds are expected to increase their holdings of A-shares by at least 10 percent annually over the next three years, Wu said.

The officials made the remarks when addressing the implementation plan to promote inflows of medium- and long-term capital into the stock market issued on Wednesday by six departments: the office of the Central Financial Work Commission, the China Securities Regulatory Commission (CSRC), the Ministry of Finance, the Ministry of Human Resources and Social Security, the People's Bank of China and the National Financial Regulatory Administration.

In recent years, Chinese authorities have consistently introduced policies to encourage the inflow of medium- and long-term capital into the market. The Central Economic Work Conference held in December 2024 emphasized the stabilization of stock markets and resolution of bottlenecks for the entry of medium- and long-term capital into the market.

The newly released plan is more practical and detailed, acting as a "blueprint" for implementation, Zhao Xijun, co-president of the China Capital Market Research Institute at Renmin University of China, told the Global Times on Thursday. 

Clear requirements for the scale and timeline of various funding sources have been outlined, providing strong support for the growth of long-term capital, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times on Thursday.

According to an analysis by Huafu Securities Co, the plan is expected to bring at least 200 billion yuan in institutional medium- and long-term incremental funds to A-shares annually over the next three years.

Resolving bottlenecks

The plan not only sets clear targets for raising investment proportions for certain institutions but also extends the performance evaluation period for fund managers and investors.

The performance of state-owned insurance companies will be assessed over a cycle of more than three years. For the national social security funds, it will be over five years; and for basic pension funds, it will be over three years. 

Short evaluation periods have long been a major bottleneck restricting commercial insurance funds, pension funds, and other medium- to long-term capital from increasing their investments. Implementing longer evaluation periods can be effective in smoothing out the impact of short-term market fluctuations on performance, Wu noted.

Such arrangements are beneficial for improving the investment returns of various medium- and long-term funds, resulting in a win-win situation. For example, the national social security fund is one of the most active long-term investors in domestic stock markets. Over the past 20 years, its average annualized return from A-share investments has reached 11.6 percent, a high figure largely attributed to its commitment to value investing and long-term investment strategies, Wu said.

Short-term market trends are difficult to predict, but from a longer-term perspective, strong companies will have the opportunity for a valuation rebound, Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Thursday.

Currently, both the price-to-earnings ratios of the CSI 300, the Shanghai Composite Index, and the Wind All China Index are at relatively low levels. Therefore, from a three-year perspective, this is an excellent time to position, especially for large investors, Yang noted.

As for potential losses that insurance funds may face when entering the market, Yang said that medium- and long-term funds pay more attention to the fundamentals of listed companies. Attracting them into the market will push the market style to fundamental research, and stocks with outstanding performances will regain the favor of funds.

Although the market has seen some adjustments recently, many prominent domestic and international investment institutions have expressed optimism about the outlook of the Chinese stock market.

There is substantial room for growth in 2025 and we are constructive on Chinese equities in the next 12 months, Raymond Ma, Invesco's chief investment officer for Hong Kong and Chinese mainland, said at the end of 2024 in a note sent to the Global Times.

Foreign capital has become an important source of funds for A-shares, with a significant portion coming from medium- and long-term capital, including globally renowned pension funds and commercial insurance funds, Wu said.

Medium- and long-term capital serves as a key source of professional investment in capital markets and acts as both a "ballast" and a "stabilizer" for maintaining market stability and healthy development, Wu said, stressing that the latest plan will contribute to a virtuous cycle of stable and healthy capital market operations and high-quality development of the real economy.