Chinese State-Backed Insurers Launch $7 Billion Fund to Boost Struggling Stock Market

Two Chinese state-backed insurance giants, New China Life Insurance and China Life Insurance, are set to collaborate on a joint private fund, injecting a total of 50 billion yuan (approximately US$7 billion) into the initiative. This move comes as part of broader efforts by policymakers to bolster the struggling Chinese stock market. The fund, managed by the joint venture named Honghu Private Securities Investment Fund, is pending approval from shareholders after receiving the green light from both companies' boards.

New China Life Insurance revealed in a statement that each company would contribute 25 billion yuan to the fund. The primary objective is to enhance longer-term investment assets in alignment with the firms' strategic goals, optimize asset and liability structures, and improve capital utilization efficiency. While the specific investment scope of the fund remains undisclosed, it is expected to focus on yuan-denominated shares of Chinese onshore listed companies exhibiting sound corporate governance and stable business operations.

Liu Xinqi, an analyst at Guotai Junan Securities in Shanghai, emphasized the fund's alignment with policymakers' encouragement for financial institutions to support the industry and channel long-term insurance investments into the market. This development underscores the ongoing efforts by regulators to fortify the $9.7 trillion Chinese stock market, which has faced challenges despite previous supportive measures such as a reduction in stamp duty and state intervention in banking stocks and exchange-traded funds.

The benchmark CSI 300 Index, reflecting the performance of major stocks listed in Shanghai and Shenzhen, has experienced a 2% decline in November, marking the fourth consecutive monthly decrease. Year-to-date, the index has dropped approximately 10%, making it the worst-performing equity benchmark globally after the Hang Seng Index. Factors contributing to this decline include a sluggish economic recovery following the country's reopening post-COVID and a withdrawal of foreign investors amid rising interest rates in the United States.

Despite these challenges, shares of New China Life rose by 0.9% to 31.34 yuan in Shanghai, and China Life's shares gained 0.3% to 30.07 yuan. New China Life's largest shareholder is Central China Huijin Investment, a unit of China's sovereign wealth fund, holding a 31% stake. Meanwhile, China Life is under the control of the finance ministry.

Analysts suggest that the creation of this new fund will contribute to stabilizing insurers' profits by mitigating the impact of market volatility. Investments in the fund will be accounted for using long-term principles, reducing the immediate reflection of market fluctuations in income statements. Notably, both New China Life and China Life reported financial challenges in the third quarter, attributing losses and a significant decline in net income to market volatility.

By fLEXI tEAM