After the strongest market stabilization stimulus policy package, what is the willingness of insurance funds to enter the market?
On April 8, the National Financial Regulatory Administration issued the "Notice on Adjusting the Regulatory Ratios of Equity Assets of Insurance Funds" (hereinafter referred to as the "Notice"), raising the upper limit of equity asset allocation ratios to promote the entry of insurance funds into the market. Meanwhile, several insurance companies announced that they had increased their positions in ETFs on April 7 and 8, and would repurchase shares and increase equity allocations.
Can the new regulatory rules truly mobilize the enthusiasm of insurance funds to enter the market? At a time when some insurance funds are using "real money" to support the market, what is the situation with other insurance funds entering the market, and what policy expectations do they have?
After conducting multiple surveys within the industry, Caixin reporters learned that the industry is currently divided into optimists and conservatives. The optimists have already increased their positions to 80% and are very bullish on A-shares, while the conservatives still have concerns and are cautious about entering the market considering the safety cushion. Some industry insiders also believe that the new regulatory rules benefit only a few insurance companies and expect more supportive policies to be introduced. However, industry insiders also stated that the implementation of policies is a long-term process, and considering the inversion of liability costs and bond yields, it is inevitable for insurance funds to increase equity allocations.
Optimists: Very bullish on A-shares, have increased positions to 80%
A mid-sized property insurance company's asset management head told Caixin reporters, "We are currently very bullish on A-shares and have increased our positions by 20% in the past few days, raising our position from 60% to 80%."
To cope with external environmental shocks, from April 7 to the pre-market session on April 8, messages supporting A-shares were intensively released, bringing strong confidence to the market. The central bank, the National Financial Regulatory Administration, and Central Huijin issued statements and policies to support the market, while insurance funds, central state-owned enterprises, and financial institutions also injected "real money" into the capital market by increasing ETF holdings, repurchasing shares, and increasing allocations.
Caixin reporters learned from Wind data that, according to incomplete statistics, several insurance companies increased their stock holdings on April 7 and 8. Top-tier insurance companies such as China Life and Ping An of China increased their positions by millions of yuan in a single day, with the targets covering finance, technology, consumption, and other fields, complementing the direction of central state-owned enterprise holdings during the same period. (See the figure below)
Another insurance fund equity allocation manager also told Caixin reporters that the current state is clearly bullish. He also felt the market changes in the past two days, "For more than a decade, the market has been calling for a stabilization fund. Although there have been practical operations, it has never been acknowledged. This time it has directly emerged. In the long run, it may act as a market maker for the index, the volatility of the CSI 300 will decrease, the Sharpe ratio will change, but it will not alter the long-term yield."
Overall, some large-scale insurance funds have already increased their holdings of equity assets, while other large-scale insurance funds have expressed their intention to increase positions "at an appropriate time."
China Pacific Insurance stated that it had increased its holdings of broad-based exchange-traded funds (ETFs) and other products on April 7 and will continue to increase its holdings of high-quality assets representing the future direction of China's economic development. Sunshine Insurance stated that it had continuously increased its holdings of equity assets on April 7 and 8. China Re Asset Management stated that it had recently increased its positions in ETFs and high-quality assets.
New China Life Insurance stated that it would increase its allocation of bottom-line equity assets and equity investments in national strategic emerging industries. China Life Insurance stated that it would actively support the development of the capital market. PICC stated that it would steadily increase its investment scale in the A-share market and accelerate the implementation of long-term stock investment pilot projects for insurance funds. Ping An of China stated that it would increase its investment in strategic emerging industries, advanced manufacturing, new infrastructure, and value-type varieties.
Conservatives: Current valuations are low enough, but there are concerns
An investment head of a small and medium-sized life insurance company told Caixin reporters that the current valuations are low enough, but external risks have not yet been resolved. "Now that the equity of various companies has fallen for three years, there is no safety cushion, and entering the market will still be cautious."
"After the policy relaxation, it does not mean that companies will immediately use the upper limit increase. The upper limit increase of 5 percentage points will, to a certain extent, increase the company's tolerance for equity thresholds, but insurance funds will still make prudent allocations according to the principles of safety, liquidity, profitability, and asset-liability matching," a securities analyst explained to Caixin reporters the current mentality of "conservative" insurance funds.
Regarding the current A-share market, another life insurance company investment head told Caixin reporters, "In the long run, the stabilization fund cannot rely solely on the central government's funding. It should form a market stabilizer with funds such as social security funds, insurance funds, and public funds to ensure the sustainable and healthy development of the stock market."
The above-mentioned head also stated that the characteristics of insurance funds are long-term and stable, and under the premise of pursuing safety, appropriate investment returns are sufficient. The current regulatory policy relaxation is beneficial to top-tier enterprises. Positive policies should also be introduced for small and medium-sized insurance institutions, such as encouraging small and medium-sized insurance institutions to invest in blue-chip stocks without occupying capital. Small and medium-sized insurance institutions can also be encouraged to jointly establish insurance asset management companies, which can reduce investment research costs and share investment research resources.
Long-term insurance funds will inevitably increase equity allocations
At 8:30 am on April 8, the National Financial Regulatory Administration issued the "Notice," relaxing the restrictions on the equity asset allocation ratios of insurance companies with sufficient solvency, with the upper limit reaching 50% of total assets. This policy has greatly boosted market confidence.
Several industry insiders told Caixin reporters that the timing of the policy release has strong signaling significance. However, the new regulatory rules do not benefit every company. A life insurance company investment head also told Caixin reporters that the current regulatory policy relaxation is beneficial to top-tier enterprises, while small and medium-sized insurance institutions have not enjoyed the corresponding policies.
The rare aspect is that the "Notice" was dated April 8 and released at 8:30 am on April 8. "Urgent drafting," an insurance professor told Caixin reporters.
How much insurance funds can the policy actually drive into the market for allocation? From the policy effects driven by the "Notice," several industry securities analysts estimate that the upper limit of equity allocation in the insurance industry after the new regulatory adjustment is around 0.5-0.6 trillion yuan. Caixin reporters noted that the asset scale of insurance companies benefiting from the new regulatory rules to increase the allocation upper limit accounts for about one-third of the entire industry.
"The introduction of the policy may not necessarily bring immediate effects, it is a long-term process," another securities chief analyst told Caixin reporters, "Because insurance funds invest in bonds, there is still an inversion between liability costs and bond yields. Fundamentally, insurance funds will inevitably increase the proportion of equity investments, especially long-term stable high-dividend stocks."
