China has opened up a new channel for insurers to invest in Hong Kong equities.
Insurance funds are now allowed to buy the territory’s shares through an exchange trading link with Shanghai, the China Insurance Regulatory Commission said in a statement on its Web site, without saying when the funds could start using the link.
The increased access will help the companies boost investment returns, it said.
The move comes less than a month after officials dropped the overall quota for mainland investors to buy stocks in Hong Kong and approved the opening of a second link via Shenzhen, while retaining daily limits.
Insurers are allowed to invest up to 15 percent of their assets in overseas markets, including Hong Kong, which they can currently do through a different program.
“It’s unexpected and positive for the Hong Kong market, though there are regulatory caps on how much money they can actually allocate,” said Hao Hong (洪灝), chief China strategist at Bocom International Holdings Co (交銀國際控股) in Hong Kong.
Chinese investors have already been showing more appetite for Hong Kong stocks. Net buying of equities in the territory through the Shanghai link has swelled to average 4.7 billion yuan (US$705 million) a day this week, exchange data showed.
Hong Kong’s Hang Seng Index has rallied 9.2 percent this year, compared with a 13 percent drop for the Shanghai Composite Index.
The move is “good news for Hong Kong shares as it means more liquidity in the stock market,” said Castor Pang (彭偉新), head of research at Core-Pacific Yamaichi Hong Kong (京華山一). “Insurers tend to buy and hold shares.”
Chinese insurers’ premium income expanded 37 percent from a year earlier to 1.88 trillion yuan in the first half of this year, according to data from the commission, as the companies boosted sales of policies amid falling interest rates.
Their combined profits in the first six months slumped 54.1 percent, largely due to stock market declines and higher expenses, the regulator said in July.
“I don’t think this is a big revolution, but it is a positive step,” said Ronald Wan (溫天納), chief executive of Partners Capital International Ltd (博大資本國際) in Hong Kong. “It shows China’s government is trying to make funds more active and enhance returns.”
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