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Mark O'Neill

Eyeing higher returns, insurance firms want cap raised to as much as 15pc

China's insurers have asked the regulator to let them invest a larger proportion of their capital in the domestic stock market, fuelling a mood of optimism for mainland  exchanges, which reopen today after the May Day holiday.

Several firms have applied to the China Insurance Regulatory Commission (CIRC) to raise the  proportion from 5 per cent to between 7 per cent and 15 per cent, seeking a higher return than the combined 3.6 per cent they made  last year and 2.9 per cent in 2004,  sources said.

Regulations restrict  insurers to investing most of their money in bonds and bank deposits  - 57 per cent and 37 per cent, respectively, of their investments last year, according to CIRC figures.

Insurers control one of the biggest pools of capital in China,  valued at 1.6 trillion yuan as of February 28, a figure that has more than quadrupled in the five years.

Sources said  insurers  expected the bull market  to continue this year and wanted improved access to it.

The Shanghai Composite Index closed on April 28  before the holiday at 1,440.2 points, its highest in 19 months and up 24 per cent this year. It added 1.7 per cent on April 28, shrugging off a surprise  rise in  interest rates the day before.

The Shenzhen  index has fared even better, rising just over 25 per cent since the start of the year from 283 to 353 points on April 28.

The insurers' application  is one of several pieces of good news. Another is the prospect of new initial public offerings,  suspended by the China Securities Regulatory Commission (CSRC)  in  May last year, to support  the conversion of  US$250 billion in non-traded state shares in listed  firms into  tradable shares.

On April 29 after the market closed, the CSRC proposed a series of changes for  initial offerings aimed at promoting the listing of high-quality companies and invited feedback from the public before May 14.

Tian Wenbing, head of research at Gang Ao Consultancy Investment, said that capital raising would be done in three steps.

The first  would be private placements, such  new shares to major shareholders.

The second  would be public placements and secondary offerings of shares but not including  initial offerings,  and the third  would be new  share offerings.

'The Shanghai Stock Exchange has demanded its companies institute the state share reform plan before June 30,' he said.

On Saturday, the CSRC said that as of April 24, 868 of the 1,344 listed  firms in Shanghai and Shenzhen, accounting for 70 per cent of  market capitalisation, had  finished or were  finishing  state share reforms.

Another bullish factor is the strong foreign demand for A shares.

As of the end of  last month, the government had awarded investment quotas  worth US$6.57 billion to 34 qualified foreign institutional investors (QFII)  in a bid to increase capital inflow into the market.

As of the end of March, QFIIs held 4.3 billion A shares, an increase of 43.3 per cent from the end of last year, in 65 listed companies.



Insurers seek wider investment in stocks