Chinese insurers receive approval to trade Hong Kong shares through Shanghai stock link

Theoretical inflows could exceed HK$640 billion, analysts say

PUBLISHED : Thursday, 08 September, 2016, 9:14pm
UPDATED : Thursday, 08 September, 2016, 10:52pm

The buying fever on Hong Kong’s stock market looks set to continue after mainland Chinese insurers were given the green light by the country’s insurance regulator to buy equities in the city via the Shanghai stock link and soon to be introduced Shenzhen link.

Funds managed by mainland insurance companies will be allowed to participate in the Shanghai- Hong Kong stock connect programme under the “prudential and safe” principal, according to a notice posted by the China Insurance Regulatory Commission (CIRC) on its website on Thursday.

“A large amount of capital may be unlocked as many big insurers have been interested in the Hong Kong stock market since earlier this year but they could only buy through the QDII channel,” said Yi Zhang, an analyst with Shenwan Hongyuan Securities in Shanghai.

Zhang estimated that insurers had around 1 trillion yuan (HK$1.17 trillion) of funds available to buy Hong Kong shares, but a considerable proportion has already been allocated through the QDII channel.

QDII, or the Qualified Domestic Institutional Investor scheme, was introduced by the Chinese government a decade ago to allow Chinese investors to trade overseas equities and fixed-income products. But the quota has been frozen at US$90 billion since March 2015 as authorities battled to stem capital outflows, mainly fuelled by further depreciation of the yuan.

Hong Hao, chief China strategist at Bocom International, said the new arrangement was “above expectation” and would be “long-term positive” for the Hong Kong stock market, helping to bolster the Hang Seng Index.

A large amount of capital may be unlocked as many big insurers have been interested in the Hong Kong stock market since earlier this year
Yi Zhang, Shenwan Hongyuan Securities

The CIRC currently allows each insurance company to invest as much as 30 per cent of their investable assets into equities, while overseas investment is capped at 15 per cent.

The official number shows the investable assets managed by China’s insurance companies stood at around 12 trillion yuan by the end of last year.

“In theory, that makes possible inflows into the Hong Kong market at around 550 billion yuan (HK$640.65 billion),” Hong said, adding that insurance companies are long-term investors so they won’t adopt quick buy and cash out strategies.

The outstanding overseas investment balance of China’s insurance companies stood at US$30 billion at the end of 2015, official CIRC figures show.

Chinese investors have already been showing a greater appetite for Hong Kong stocks. Net buying of equities in the city through the Shanghai link has swelled to an average of 4.7 billion yuan a day this week, exchange data shows.

Hong Kong’s Hang Seng Index has rallied 9.2 per cent this year, compared with a 13 per cent drop for the mainland benchmark Shanghai Composite Index.

In August, China eliminated the overall quota for mainland investors buying stocks in Hong Kong and approved the opening of a second link via Shenzhen, while retaining daily limits.

Analysts said it is highly likely insurers will be able to use the Shenzhen link to trade Hong Kong shares soon.