China urges state-backed funds to buy more shares amid market slump

China’s financial regulators on Thursday announced a series of measures urging big mutual funds and state insurers to buy more shares, as Beijing seeks to boost the faltering stock market.

Large state-owned insurance companies are guided to increase the size and proportion of their investment in listed stocks on the mainland, and allocate 30% of your newly generated premiums to buy shares, Wu Qing, chairman of the China Securities Regulatory Commission, said at a news conference Thursday.

A pilot program, starting in the first half of this year, will channel at least 100 billion yuan ($13.75 billion) from insurers into long-term stock investments, Wu said. He expects the program to continue to expand and pump in at least “hundreds of billions of yuan” each year into stock purchases.

Mutual funds are also forced to increase their holdings in mainland-listed stocks by 10% annually, in terms of market valuation, over the next three years, he said.

A consortium of six financial regulatorsincluding the securities regulator, first unveiled the plan on Wednesday to direct large funds, including pension funds, to buy more local stocks, with the goal of “stabilizing the stock market,” according to CNBC’s translation of a Chinese statement from regulators.

“Having institutions like insurers owning more China stocks helps reduce volatility and create a more stable trading environment based on fundamentals,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital.

He suggested the latest initiative will help “establish more attractive long-term investment options” after a crisis in the property market damaged household wealth.

Following the press conference, the benchmark CSI 300 index rose more than 1.8%, reducing the index’s decline this year to around 2.7%, according to LSEG data.

While the CSI 300 recorded a 15% annual profit last year, The index closed the year falling almost 12% from its highest levels of the year.

Beijing’s recent gradual stimulus measures have dashed investors’ hopes of a near-term recovery in the ailing economy, prompting a rush of funds into the safety of government bonds, driving yields down to record lows.

In October, China’s central bank launched an exchange facility plan to give insurers and brokers have easier access to buy relatively cheap shares and central bank bills to help finance share purchases and buybacks of listed companies.

Dividend payments and share buybacks by Chinese companies last year reached record levels, Wu said, while encouraging listed companies to increase dividend payments in the run-up to China’s Lunar New Year. at the end of this month.

Wu noted that the current dividend yield of the CSI 300 reached 3%, “which is significantly higher than the yield of 10-year Treasury bonds.” The benchmark 10-year yield stood at 1.671 on Thursday.

Thursday’s announcements are expected to spark an influx of capital into Chinese “value stocks,” which are considered significantly undervalued given their strong future growth potential, according to Lei Meng, China equity strategist at UBS.