China Boosts Stock Purchases to Stabilize Equity Market Amid Trade Tensions

China is encouraging domestic mutual funds and insurers to increase their stock investments in a bid to bolster its equity market.

Specific Guidelines:

* Mutual funds are required to raise onshore equity holdings by at least 10% annually for the next three years.
* Large state-owned insurers must invest 30% of new policy premiums from 2025 in equities.

Market Reaction:

* The CSI 300 Index briefly rose 1.8% upon the announcement, but later pared gains to close 0.2% up.
* The Hang Seng China Enterprises Index declined 0.5%.

Analyst Perspectives:

* Jason Chan of Bank of East Asia believes the policy benefits Chinese equities, particularly dividend-yielding state-owned enterprises.
* Gary Tan of Allspring Global Investments views the measures as incrementally positive but not transformative.

Additional Measures:

* China will launch a second stage of an equity investment trial program for insurers, with a commitment of at least 100 billion yuan ($13.7 billion).
* The government aims to enhance flexibility in long-term investment management for state-controlled insurers.

Market Drivers:

* Chinese shares have faced pressure due to concerns about economic slowdown and potential tariffs.
* Beijing's previous stimulus efforts have failed to meet market expectations.
* Escalating trade tensions between China and the US have weighed on market sentiment.

Efforts to Stabilize the Market:

* China has recently introduced various measures to support its stock markets, including expanding pension investments and providing liquidity to securities firms.
* These initiatives aim to stabilize the market amidst uncertainty and market volatility.