China moves to boost languishing markets by ordering funds to invest more in shares
BANGKOK (AP) — The Chinese government plans to ensure that share prices will rise by ordering pensions and mutual funds to invest more in domestic stocks, to help jolt the markets out of the doldrums.
Officials told reporters in Beijing on Thursday that beginning this year mutual funds should increase holdings of onshore stocks, called A-shares, by at least 10% a year over the next three years.
Commercial insurance funds will have to put 30% of their annual new premium revenue into share markets beginning this year, they said.
“This means that at least several hundred billion yuan of long-term funds will be added to A-shares every year,” said Wu Qing, chairman of the China Securities Regulatory Commission.
“Implementing the plan’s various measures will further enhance the equity allocation capacity of medium- and long-term funds, steadily expand the scale of investment, improve the supply and structure of funds in the capital market, and consolidate good conditions for the capital market’s recovery,” Wu said.
The ruling Communist Party announced this move just ahead of China’s biggest holiday of the year, the Lunar New Year, which begins on Wednesday, Jan. 29. It’s a time when families tend to splash out on food and travel and little red packets of money for children and young adults, a time of wishes for good fortune.
Markets in Hong Kong and Shanghai rose early Thursday after the announcement, with the Shanghai Composite index initially gaining nearly 1.5%, though it was up 0.8% by midday. The Hang Seng in Hong Kong shed early gains and was nearly unchanged.
China’s share markets are huge but they hit their peak value before the Asian financial crisis and have meandered well below that level since. A lack of gains in share prices, along with falling housing prices, has discouraged Chinese families from spending, slowing consumer demand and economic growth.
So far, the government’s efforts to get people to spend more and save less have had mixed success. An initiative to promote purchases of energy efficient vehicles and appliances by paying subsidies to people who turn in their old versions of such items has boosted sales of such products. But share prices had traded stubbornly within a narrow range after a brief-lived rally late last year.
Wu said pension funds will be required to revamp how they assess their performance and companies will be encouraged to conduct more share buybacks and pay higher dividends to give shareholders better returns.
“This is a very important institutional breakthrough for the entry of medium- and long-term funds into the market. It can be said that it has solved a problem that has been unsolved for many years,” he added.
Sell-offs by major shareholders and high market volatility have handicapped the Chinese markets, Lei Meng, a China equity strategist at UBS Securities, said in a commentary Thursday.
So, “the willingness of long-term investors to participate in the stock market has dwindled,” Lei said. “The proposal of market value management reform directly addresses this issue because it is directly related to investors’ sense of gain.”
By ELAINE KURTENBACH
AP Business Writer
