‘You shouldn’t be acting like a hedge fund’, insurance regulator warns Evergrande

China’s insurance regulator has issued an unusual warning for China Evergande Group to stop making use of its insurance unit as a slush fund for trading assets.

“Evergrande Life should have a thorough introspection of the negative influence brought by its short-term speculation of stocks, and should stick to the principal of long-term value investment and strengthen risk control,” the statement said, adding the CIRC would tighten up scrutiny into the use of capital by insurers.

Evergrande, one of the most indebted developers in China’s property industry with a net gearing ratio of about 430 per cent at the end of June, is the parent company of Evergrande Life, holding a 50 per cent stake.

The regulator is clamping down on speculation by insurance companies on China’s domestic stock markets, after insurers were seen to be manipulating share prices. Analysts noted that active trading on high volume is permitted under the current law.

“Insurance capital is usually considered a long-term investment, just like pension funds, or social welfare funds. But in the last two years, insurance have changed their investment style and more frequently engage in short-term speculation in stocks, some have even become a weather vane followed by smaller investors in the stock market,” said Guo Shiliang, a syndicated financial columnist who appears in the official China Securities Journal.

“The CIRC has given a verbal warning to insurers by admonishing Evergrande Life, however, whether Evergrande is manipulating share prices, there has yet to be a ruling from the securities authority,” Guo said.