Asian Markets Mixed Amidst China’s Long-Term Capital Initiatives
Asian equity markets experienced a mixed performance, with Hong Kong, Mainland China, Thailand, and South Korea lagging, while Taiwan’s markets remained closed. This performance followed a highly anticipated press conference held by several key Chinese regulatory bodies, including the China Securities Regulatory Commission (CSRC), People’s Bank of China (PBOC), Ministry of Finance (MoF), Ministry of Human Resources and Social Security, and the National Financial Supervision Administration. The conference centered around the "Implementation Plan for Promoting the Work of Entry of Long-Term Capital," aiming to bolster the Chinese stock market by attracting sustained investment. While initial market reactions were positive, particularly regarding the increased allocation of insurance funds to equities, the overall response was muted, with indices retreating from early gains.
The plan outlines several key initiatives to channel long-term capital into the A-share market. A significant measure involves increasing the proportion of new insurance policies invested in stocks to 30% by 2025, up from the current 13%. The CSRC projects this will inject "several hundred billion CNY of long-term funds" into the market annually. Further bolstering this, insurers are committed to investing at least RMB 100 billion in "long-term equity investment pilot projects" in the first half of 2025, with plans for gradual expansion. The plan also includes revisions to regulations governing the RMB 3 trillion National Social Security Fund’s reserves and a target of 10% annual growth in mutual funds’ equity holdings over the next three years.
Complementing these measures, the PBOC has implemented a stock market support program by providing loans to investors, totaling RMB 50 billion in October and RMB 55 billion in January, while concurrently reducing margin requirements from 30% to 10% and extending loan terms to three years. This program has seen significant participation, with 800 companies initiating the process and 300 publicly disclosing plans to borrow over RMB 60 billion for share buybacks at a 2% interest rate. Additionally, RMB 5.7 trillion has been allocated in bank loans to support strategically important real estate projects deemed "too big to fail."
Despite the comprehensive nature of the announced initiatives, the market response was underwhelming. One contributing factor was the lack of clarity regarding the projected inflow of funds from insurance investments. While the CSRC mentioned "several hundred billion," post-conference analysis estimated a more precise range of RMB 370 billion to RMB 830 billion annually, based on historical insurance policy growth and allocation ranges. This lack of initial specificity likely dampened investor enthusiasm. Furthermore, the absence of Central Huijin, a state-owned investment company, from the conference raised questions about their potential involvement in market support through stock purchases, which some estimate could exceed $150 billion. Many analysts see parallels between these initiatives and the successful strategies employed by Japan over a decade ago to revitalize its stock market.
Market performance reflected this uncertainty, with growth-oriented stocks generally underperforming, despite notable gains from Alibaba. Mainland investors, however, continued to demonstrate confidence in Hong Kong-listed equities, purchasing a net $693 million worth of stocks and ETFs. This positive inflow was offset by broader market declines, with the Hang Seng and Hang Seng Tech indices falling -0.40% and -1.43%, respectively. Trading volume increased significantly, with short turnover also rising, indicating heightened market activity. Sector performance was mixed, with financials leading the gains while information technology, real estate, and materials sectors experienced declines. Southbound Stock Connect volumes remained robust, highlighting continued mainland interest in Hong Kong-listed securities.
Meanwhile, Mainland China’s markets exhibited diverging trends, with Shanghai, Shenzhen, and the STAR Board closing +0.51%, -0.37%, and -0.95%, respectively. Trading volume increased significantly, exceeding the one-year average. Similar to Hong Kong, value stocks and large caps outperformed growth stocks and small caps. Sector performance varied, with financials and real estate gaining while information technology and consumer discretionary sectors declined. Northbound Stock Connect volumes remained above average, indicating sustained foreign investor interest in A-shares. Currency and commodity markets also experienced fluctuations, with the CNY weakening against the US dollar, treasury bonds declining, and copper prices falling while steel prices rose.
In essence, the announcement of China’s long-term capital plan generated a mixed reaction in the Asian markets. While the initiatives demonstrate a commitment to bolstering the stock market through increased long-term investment, the lack of specific details regarding the projected capital inflows and the absence of key players like Central Huijin contributed to investor hesitancy. Market performance reflected this uncertainty, with growth stocks lagging and indices experiencing modest declines. Continued mainland investment in Hong Kong-listed securities and robust trading volumes suggest ongoing market interest, but the overall impact of the announced plan remains to be seen as the market digests the details and awaits further clarity on implementation and potential involvement of other market participants.
