China orders funds to invest more in shares to boost struggling markets

China is taking steps to revitalize its lagging markets by instructing funds to increase their investments in domestic stocks. The Chinese government is intervening to ensure that share prices receive a boost and help pull the markets out of a period of stagnation.

Officials disclosed in Beijing that mutual funds are mandated to raise their holdings in onshore stocks, referred to as A-shares, by a minimum of 10% annually over the course of the next three years. Moreover, commercial insurance funds are required to allocate 30% of their new premium revenue into the share markets, starting from this year. This move is anticipated to inject several hundred billion yuan of long-term funds into A-shares every year.

Wu Qing, the chairman of the China Securities Regulatory Commission, pointed out that the implementation of these measures will heighten the equity allocation capacity of medium- and long-term funds. This will lead to an expansion in the size of investment, enhance the supply and structure of funds in the capital market, and solidify conducive conditions for the recovery of the capital market.

Following the announcement of these directives, markets in Hong Kong and Shanghai experienced a positive momentum, with the Shanghai Composite index witnessing a 1.4% increase. The share markets in China, while substantial, have never reclaimed their peak value prior to the Asian financial crisis. This situation has persisted, impacting consumer spending due to the lack of growth in share prices and declining housing values.

Lei Meng, a China equity strategist at UBS Securities, indicated that sell-offs by major shareholders and significant market volatility have hindered the progress of the Chinese markets. As a result, the enthusiasm of long-term investors to engage in the stock market has diminished. Measures such as the proposal for market value management reform aim to address this issue directly by enhancing investors’ sense of gain.

While some critics express concerns about manipulation in the Chinese market, the government’s intervention is seen as a strategic move to stimulate economic growth. By encouraging funds to invest more in shares, China hopes to breathe new life into its markets and provide a boost to its economy. This initiative aims to create a more vibrant and dynamic investment environment that fosters growth and stability in the capital market.