Chinese insurance regulator in bid to boost ChiNext market
Move to allow insurers to invest in growth enterprises seen as providing new fund source
The mainland's move to allow insurance companies to buy ChiNext shares is meant to provide a fresh source of funds for the stock market, but analysts doubt insurers will be interested in growth enterprises.
The valuation of stocks trading on Shenzhen's ChiNext board, a Nasdaq-style market for growth enterprises, was not attractive, said Chen Xingyu, an analyst with Phillip Securities.
He said insurers could instead cash in on companies seeking initial public offerings, which are resuming after a halt of more than a year.
"The relaxation to allow Chinese insurers to buy ChiNext shares came at the right time, when the IPO market is about to resume," Chen said. "More funds will be needed to support the market when there will be more financing activities, and insurers have been the major institutional investors in the market."
The China Insurance Regulatory Commission announced on Tuesday that insurers could invest in ChiNext stocks. They will be required to report if their shareholdings in a single company reach 5 per cent. However, they should avoid companies that are under regulatory investigation or have been punished or censured within the year.
"Insurers are conservative in their investment strategies, while investing in growth enterprises is riskier," Chen said. "They may not be so willing to pour too much money into the ChiNext market."
Insurers' holdings in stocks and equity funds amounted to 755.6 billion yuan (HK$967.3 billion) at the end of November, accounting for 10.1 per cent of their total assets, according to CIRC data. Currently, insurers' equity investment is capped at 20 per cent of their assets.
The ChiNext market fell 2.15 per cent yesterday, after rallying 3.3 per cent on Wednesday on expectations of more investment from insurers.
Jiao Wenchao, an analyst with Ping An Securities, said insurance companies were unlikely to make significant investments on the ChiNext market because of the smaller capitalisations of growth enterprises and lower trading volumes when compared with blue-chip companies.
The liquidity of insurers' investments would be limited if trading in ChiNext shares was thin, Jiao said.
"For the short term, insurance companies can make use of their advantage of abundant funds to subscribe to new share offerings," he said.
The CIRC also said on Wednesday it planned a pilot programme to allow insurers to invest in blue-chip stocks using premiums from policies sold before 1999.
Chen said the regulator was moving to allow insurers to diversify investments and give them more flexibility in asset allocation.
"But the stimulus on the stock markets will be insignificant as I don't expect insurers to invest large sums in blue chips once they are allowed to do so," he said. "They will need time to look into different sectors and stocks."