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Ratio for insurance capital to directly invest in equity market likely to be raised to 10% -- Report |
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Written by Administrator
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Tuesday, 15 August 2006 |
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BEIJING, August 15 (InfoChina) -- More insurance capital will flow into equity market as the Chinese government is weighing lifting the ratio for insurance companies to invest in equities from 5% to 10%, Xinhua-run Shanghai Securities News cites well-informed sources as saying.
This echoed what Wu Dingfu, the president of the Insurance Regulatory Commission, said earlier that “the cap of 5% for insurance capital’s direct investment in equity market may be broken within 2006”.
If the cap is lifted to 10%, insurance capital directly invested in equities will theoretically rise to more than 150 billion yuan, which, plus those enter the market indirectly, points to a total equity investment of more than 330 billion yuan by insurance companies.
Experts believe that increased insurance capital in stock market will help to stabilize the market as insurance capital usually favors relatively long-term investments.
Open-end funds are the major institutional investors in the Chinese stock markets. Unlike their Western counterparts, these young funds are highly speculative and prefer short-term transactions, resulting in the high volatility of the Chinese stock market.
Statistics show that in the first half of 2006, insurance companies invested 40.2 billion yuan in equities, up 186% compared to the figure for yearend 2005. China Life Insurance (NYSE: LFC) is the largest investor, with a stock investment of 18 billion yuan.
There is still a large room for insurance companies to expand its role in equity investment. Equity investment by insurance capital makes up less than 3% of China’s stock market, much lower than the 30% for the U.S. in 2004.
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China Stock News