BANGKOK — In an effort to stimulate the stock market, the Chinese government intends to implement a plan that will boost share prices by mandating increased investment from pensions and mutual funds into domestic stocks.
Officials announced on Thursday in Beijing that starting this year, mutual funds will be required to raise their holdings of domestic A-shares by a minimum of 10% annually over the next three years. Furthermore, commercial insurance funds must allocate 30% of their new premium income into the stock market as part of this initiative.
Wu Qing, chairman of the China Securities Regulatory Commission, expressed that this approach is expected to inject several hundred billion yuan of long-term capital into A-shares every year. He noted that the various measures of this plan will enhance the investment capacity of medium- and long-term funds, increase overall investment scale, and improve the structural supply within the capital market, assisting in the recovery of the market overall.
The ruling Communist Party introduced these measures right before China’s most significant annual holiday, the Lunar New Year, commencing on January 29. This holiday season typically sees families indulging in spending on celebrations, travel, and giving monetary gifts in red envelopes to younger relatives, symbolizing wishes for prosperity.
Following this announcement, Hong Kong and Shanghai’s markets experienced a rise, with the Shanghai Composite index initially climbing by almost 1.5% early Thursday, settling for a 0.8% increase by midday. On the other hand, the Hang Seng index in Hong Kong struggled to maintain its early momentum and ended nearly flat.
While China’s share markets occupy a substantial space, they have not recovered to their peak values observed before the Asian financial crisis, remaining stagnant well below those levels. This stagnation, combined with declining real estate prices, has led to a decreased consumer spending and sluggish economic growth in the country.
The government’s attempts to encourage higher consumer spending while reducing savings rates have produced mixed outcomes. An initiative incentivizing consumers to trade in older vehicles and appliances for energy-efficient alternatives through subsidies has seen an uptick in sales; however, stock prices have remained trapped in a limited range following a short-lived rally in the previous year.
Wu also mentioned that pension funds will need to revise their performance evaluation methods, and corporations will be motivated to conduct more stock buybacks and increase dividends to enhance shareholder returns. He referred to this as a significant institutional advancement for encouraging medium- and long-term investment in the market, likening it to resolving a longstanding issue.
Market instability and sell-offs by major shareholders have hampered Chinese stock markets, as noted by Lei Meng, a China equity strategist at UBS Securities, in his commentary. He pointed out that “the willingness of long-term investors to participate in the stock market has dwindled,” and emphasized that the proposed management reform of market value aims to directly tackle these concerns related to investor confidence and gains.
