SHANGHAI: Insurance companies will not immediately increase direct investment in shares despite more insurance funds reportedly being allowed onto the stock market, key players said yesterday.

But they insisted that the relaxed restriction on insurers' shareholdings widened investment channels, boosted returns on investment, and stabilized the stock market by reducing speculation on short-term assets because insurance funds are medium to long term.

Chinese authorities are poised to allow insurers to invest upwards of 10 per cent of their total assets, calculated at the end of the previous year, on the stock market, the Shanghai Securities News reported yesterday, quoting an unidentified source.

Currently, investments by insurance institutional investors on the stock market must be calculated at cost price and should be no more than 5 per cent.

That means insurance assets able to directly enter the Chinese stock market would amount to 150 billion yuan (US$18.75 billion). If combined with the amount invested indirectly, insurance funds allowed on the stock market would exceed 330 billion yuan (US$41.25 billion).

"Generally speaking it is good news for the stock market and has been expected," Chen Jiuhong, an analyst with Haitong Securities Co Ltd, said yesterday.

"Insurance assets are medium to long term, which is beneficial to the long and stable development of the stock market and can reduce speculation on short-term assets," she said.

Chen also said that given the large share that may be taken by insurance firms, insurance institutional investors would become the second-largest institutional players on the stock market after industry fund companies.

But some analysts considered the relaxed restriction symbolic rather than having any real effect on attracting more insurance funds to the stock market.

"The allowed ratio of insurers' investment in shares is different from the realistic one," said Wu Jianxiong, an analyst with Guotai Jun'an Securities.

According to Xinhua, direct share investment accounted for only 2.75 per cent of insurance companies' total investments at the end of June, even though they were allowed to inject up to 5 per cent.

"It just offers a possibility," he added.

Many insurance companies in Shanghai are cautiously optimistic about having a large-scale presence on the stock market.

"It enhances our flexibility to deal with the funds and we see a better return on profits compared with other investment options," said Wang Jian, an official with the Taiping Life insurance company.

"But it's hard to say whether we would immediately invest more in shares as we calculate rate of profit based on risk control," he added.

"We want the license to make direct investments on the stock market, but it doesn't necessarily mean we would buy shares immediately," said Ma Xiaoyang, manager of the investment department at Manulife-Sinochem Life Insurance Co Ltd.

"It depends on the investment portfolio of each company as to whether they buy more shares," he added.

Currently the bonds market and bank deposits are two major investment destinations for insurance companies, accounting for 90 per cent of the total investment.

To cope with insurers' demand for diversified investment options for mounting premiums, qualified insurance companies have been permitted to make indirect investments in infrastructure projects and a pilot scheme was launched to let insurers buy foreign currency with their own yuan-denominated funds to invest overseas.

Source: China Daily