China Allows Insurers to Invest in Hong Kong Stocks Via Link

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  • The move will enable firms to boost returns, regulator says
  • Hong Kong stocks have outperformed Shanghai peers this year

China has opened up a new channel for insurers to invest in Hong Kong equities.

Insurance funds are now allowed to buy the city’s shares through an exchange trading link with Shanghai, the China Insurance Regulatory Commission said in a statement on its website, 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, chief China strategist at Bocom International Holdings Co. in Hong Kong.

Chinese investors have already been showing more appetite for Hong Kong stocks. Net buying of equities in the city through the Shanghai link has swelled to average 4.7 billion yuan ($705 million) a day this week, exchange data show. 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, head of research at Core-Pacific Yamaichi Hong Kong. "Insurers tend to buy and hold shares."

Profits Drop

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 CIRC, as the companies boosted sales of policies amid falling interest rates. Their combined profits slumped 54.1 percent in the period, 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’s a positive step," said Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong. "It shows China’s government is trying to make funds more active and enhance returns for insurance companies."

— With assistance by Gary Gao, and Dingmin Zhang

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