Chinese insurance firms to invest in stocks

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Last updated at: (Beijing Time) Saturday, March 13, 2004

Chinese insurance firms to invest in stocks

China's stock market is set to receive more investment from insurance firms. The Chinese government has already, in principle, approved insurers to invest directly in equities.

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China's stock market is set to receive more investment from insurance firms. The Chinese government has already, in principle, approved insurers to invest directly in equities.

Wu Dingfu, chairman of the China Insurance Regulatory Commission, said China will allow its insurance funds to enter capital markets in gradual steps.

China's 61 insurance firms seek higher investment returns than bonds and banking deposits produce. Premium incomes in the Chinese mainland rose 27.1 percent from a year earlier to 388.04 billion yuan (US$46.75 billion), putting pressure on insurance firms for better yields.

Industry officials expect the insurance regulator to permit insurers to directly invest 5 percent of their total assets, 912.28 billion yuan by the end of last year, in the A-share markets.

This can allow 45 billion yuan to flow into the stock market.

"The process of working out the practical regulations will be long," said analyst Lin Xuenong with China Securities Co. "It has already provided an incentive to the market for the long term as more liquidity is prepared in advance of the inflow."

The benchmark Shanghai Composite Index, which gained 10 percent since the start of the year, is expected to climb as high as 1800 points this year, according to Shanghai Hua'an Fund Management Co Ltd.

The composite index closed yesterday at 1694.74.

Companies representing the petrochemical, auto, metal and power supply sectors were on the upside, said the company.

Fund management firms believe insurance deregulation will not come at the cost of their business. The exposure of insurance firms to mutual funds is low.

There were concerns that insurance firm investments would cause a massive flow from mutual funds to equity investment.

China's insurance firms use only a tiny proportion of their assets to buy mutual funds.

China's insurance companies placed only 5.10 percent of their assets in the stock market through the purchase of the securities investment funds last year, falling far short of the 15 percent investment cap for the mutual funds, according to official statistics.

"Once the insurance firms are allowed to directly invest in the stock market, the size of the capital which they will initially channel into the market would not be substantial," said Li Quan, vice general manager of Boshi Management Co Ltd. "From the perspective of the reasonable asset allocation, insurance companies will not have a massive redemption from mutual funds. Instead, they are more likely to withdraw from the other investment portfolios that yield low returns."

Li referred to the low-yield investments as bonds and bank saving accounts.

The outstanding value of investment by insurers reached 873.9 billion yuan at the end of last year, among which 454.97 billion yuan were invested in bank deposits, according to sources with the China Insurance Regulatory Commission.

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