Source: Yahoo Finance

A Troubled Economy

China’s equity markets have been under pressure for some time now, with multiple factors contributing to their decline. The once-booming real estate sector has seen a dramatic meltdown and declining household wealth may trigger a deflationary spiral. Investor sentiment has also further declined due to geopolitical tensions, including renewed trade disputes with the United States under the new administration.

Despite government intervention, the benchmark CSI 300 index has been volatile. Although it posted a 15% gain last year, the index ended 2024 with a 12% drop from its yearly peak, reflecting a broader lack of confidence in the market’s resilience.*

Beijing’s Newest Policy

Under the newest guidance, insurance providers must allocate 30% of their newly generated premiums to stocks. It is expected to channel at least 100 billion yuan ($13.75 billion) into long-term stock investments in the first half of 2025. This initiative is expected to inject hundreds of billions following years too.

Other measures like decreasing fees on stock purchases have been announced too. Mutual funds must also expand their holdings in mainland-listed shares by 10% annually over the next three years to increase demand for China’s stocks.

This latest move is part of a broader effort by Beijing to bring investments back to the country and restore investor confidence. Since September 2023, the government has rolled out a series of measures aimed at revitalizing capital markets. These include re-lending schemes to finance stock purchases and corporate share buybacks and looser monetary policy. Authorities have also encouraged listed companies to increase dividend payouts.

Mixed Market Reaction

Initial market reaction to Beijing’s latest measures has been cautious. While certain sectors, such as insurance, have seen a boost, the broader market remains skeptical. China Life Insurance company rallied 4.8% but gains across the board were modest at best.* The muted response highlights the limitations of partial policies in the face of entrenched economic challenges. The benchmark index, CSI 300, climbed by over 1.8%, narrowing its year-to-date decline to around 2.7%.* However, gains across other indices were mixed. The CSI 300 blue-chip index was last up 0.2% and the Shanghai Composite Index rose by 0.6%. In contrast, Hong Kong's Hang Seng Index cut down early gains and ended the session down by 0.6%.*

* Past performance is no guarantee of future results.