CHINA / National
China urged to let insurers invest more in stocks
(Bloomberg)
Updated: 2006-09-20 11:46
China should let insurance companies invest more money directly in shares
to help develop the stock market, Shanghai Stock Exchange President Zhu
Congjiu said.
"China should expand direct stock investments by insurance companies,"
Zhu said in a speech to a financial conference in Shanghai today, without
giving figures. "Development of institutional investors is crucial to
China's stock markets."
Letting institutions such as insurers invest more in equities may help
China's $488 billion stock markets sustain a rally from eight-year lows
reached last year. Insurers are restricted to investing no more than 5
percent of their assets in local-currency A shares under current rules.
Stock investment this year by China's insurance companies jumped 186
percent to 40.2 billion yuan ($5.03 billion) as of the end of June, the
official Shanghai Securities News reported on Aug. 15. The government
plans to double the percentage insurers can invest in equities, the
report said, citing unidentified people.
The Shanghai Composite Index, which tracks the bigger of China's two
stock markets, has surged 71 percent from its July 2005 low, while the
Shenzhen Composite Index has jumped 73 percent.
The Shanghai index slipped 0.5 percent to 1726.71 at 10:37 a.m. this
morning, on course for its first decline in five days, while the Shenzhen
benchmark fell 0.3 percent to 428.57.
State Shares
China's stock markets rallied after the government suspended new share
sales in May last year and initiated a program to convert more than $250
billion of non-tradable, mostly state-owned shares into stock that can be
bought and sold on exchanges.
The overhang of non-tradable shares, accounting for about two-thirds of
the total, contributed to a market slump that shaved more than half off
the Shanghai composite's market value in the four years between 2001 and
July last year.
Companies accounting for 93 percent of China's stock market
capitalization have now carried out conversion of their non- tradable
shares, Xie Geng, director general of the market supervision department
at the China Securities Regulatory Commission, said at a conference in
Beijing today.
Only 185 out of China's more than 1,400 listed companies have yet to
start their share-conversion programs, Xie said. Under the
government-directed plan, holders of a company's tradable shares have to
agree to the change. Companies and major shareholders have been offering
cash, shares and other incentives to compensate minority holders for the
increase in supply of tradable shares.
Overseas Investors
China should also expand the amount of money overseas institutions are
allowed to invest in A shares, Fang Xinghai, deputy director of the
Shanghai government's financial services office, said at the Shanghai
forum.
The government so far has allowed 48 institutions such as Morgan Stanley,
Goldman Sachs Group Inc. and UBS AG to invest a combined $7.8 billion in
local-currency shares and bonds under a so-called qualified foreign
institutional investor, or QFII, program.
The Shanghai exchange's market capitalization will rise to more than 5
trillion yuan after Industrial & Commercial Bank of China's initial
public offering later this year, Fang said. Shanghai's current market
capitalization is 3.8 trillion yuan, according to Bloomberg data.
The government is encouraging bigger and better-quality companies to sell
shares while increasing the influence of institutional investors in an
effort to make China's stock market less speculative and more
representative of the world's fastest- growing major economy.
Beijing-based Industrial Bank, the nation's biggest lender, plans to
raise as much as $7 billion selling shares in Shanghai and $14 billion in
Hong Kong in a world-record IPO, people involved in the sale said earlier.
Institutional investors hold stocks equal to 30 percent of the market
value of tradable shares, China Securities Regulatory Commission Chairman
Shang Fulin said in a speech to today's forum.
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