China to allow insurers to double stock play

NEW YORK: China will allow insurers to double the share of assets invested in local equities to 10%, said industry executives briefed by the insurance regulator. The China Insurance Regulatory Commission has told the asset management arms of insurance companies to prepare for buying more domestic stocks, said the three people, declining to be identified as the regulator hasn’t announced the plan.

China Life Insurance, the world’s third-largest insurer by market value, Ping An Insurance and rivals can seize on the new rule to boost returns from their $321 billion of assets as premium growth slows. Insurance companies may use some of the funds to invest in companies, traded in Hong Kong, which are planning to sell yuan-denominated shares in China.

“This is aimed at increasing the profits of the insurers,” said Huang Huamin, a Beijing-based analyst at Citic Securities.

“It’s also to prepare for the return” of Hong Kong-incorporated and listed companies that are substantially owned by the Chinese government, known as red chips.

The insurance regulator didn’t immediately reply to faxed questions. Spokespeople at China Life and Ping An either declined to comment or weren’t immediately available. China Life’s shares jumped 4.5% and Ping An stock rose 3.9% at the market close in Shanghai.

China’s CSI 300 Index rose 0.7% on Thursday, bringing gains this year to 87% — the second-best performance among the world’s major benchmarks. The Hang Seng China-Affiliated Corporations Index, comprised of mainland Chinese companies incorporated and traded in Hong Kong, gained 2.6%. The measure has jumped 18% in the past month. “Insurers mostly buy blue-chip companies, so an increase of funds may push up prices of big companies like banks,” said Yi Yangfang, who helps manage about $5 billion at Guangzhou-based GF Fund Management.

By releasing more funds for stock investments, China may stoke gains in a market that’s gotten so expensive that the central bank has expressed concern about a bubble. Stocks in the CSI 300 trade at an average 41 times reported earnings, compared with 18 times for the Standard & Poor’s 500 Index.

The move may be aimed at promoting stability in a market where increases have been driven by individual investors who opened trading accounts at a rate of about 3,00,000 a day in the second quarter, some analysts said.

An 11% drop in the CSI 300 from a June 19 peak provided the CIRC with a window of opportunity for carrying out the move, Yi said. “This is a good time to do it because the market isn’t as heated any more.”

Chinese rules currently bar offshore-incorporated companies from having their shares traded on the nation’s domestic markets in Shanghai and Shenzhen. Mainland-incorporated companies traded in Hong Kong are called H shares.

The government in the past year has been encouraging its biggest H-share companies to sell stock at home. China Construction Bank, the nation’s third-biggest, and China Cosco Holdings, Asia’s largest container shipping line, last month announced plans to sell stock in Shanghai. Shares of both companies currently trade in Hong Kong.

Red-chip companies incorporated in Hong Kong include China Mobile, the world’s largest mobile-phone carrier by users; CNOOC, China’s biggest offshore oil explorer; and Lenovo Group, the world’s third-biggest personal computer maker.
China’s securities regulator has drafted rules allowing red-chip companies to sell yuan-denominated shares, the Caijing business magazine reported last month.

The CIRC in April removed a ban on buying stocks that have more than doubled in the preceding 12 months, the people said.

Insurers can invest up to 15% of their assets in mutual funds. While they can invest as much as 5% of assets in foreign fixed-income products, they aren’t yet allowed to buy stocks overseas.

China plans to issue rules by the end of August that will allow insurers to invest as much as 15% of their assets overseas, Sun Jianyong, a director at the CIRC, said in a June 1 interview.