Across The Border | Clampdown on insurers stock buying weighs on market outlook
New restrictions that block insurance companies from issuing products used to help fund leverage buyouts seen as dampening liquidity in the new year
Mainland investors are worried Beijing’s clampdown on insurance funds’ aggressive purchases of shares in Shanghai and Shenzhen will dampen liquidity, putting further pressure on equity markets struggling for direction as the economy slows.
The Shanghai Composite Index has lost nearly 5 per cent since the beginning of December when Liu Shiyu, chairman of the China Securities Regulatory Commission (CSRC), lambasted insurance firms for highly leveraged takeovers as “barbarians”.
Liu’s criticism, a rare move since he took office in February, was seen as a prelude to strengthened regulation on insurers’ share purchases.
The China Insurance Regulatory Commission (CIRC) stepped in two days later, investigating several insurers and suspending sales of high-risk investment products used to help fund leveraged buyouts.
Efforts by regulators to rein in institutional buying by the mainland’s 15 trillion yuan insurance sector has had a chilling effect on investor sentiment.
Retail investors in China consider the outlook for liquidity as a key factor in investment decisions, as most market turnover is driven by individual investors rather than institutions.