On March 16, the financial stability and Development Commission of the State Council held a special meeting to emphasize that financial institutions must proceed from the overall situation and firmly support the development of the real economy. Long term institutional investors are welcome to increase their shareholding ratio. On the same day, the Party committee of the CSRC held an enlarged meeting and proposed to improve the system and mechanism conducive to the participation of long-term institutional investors in the capital market, increase the cultivation of public funds and other institutional investors, and encourage long-term investment and value investment.
Chen Li, chief economist of Chuancai securities and director of the Research Institute, said in an interview with Securities Daily that institutional investors rely more on medium and long-term strategies to obtain income than small and medium-sized investors. To some extent, increasing the proportion of institutional investors in the market can curb short-term speculation in the market and encourage long-term investment and value investment.
“The entry of medium and long-term funds into the market is conducive to the healthy and orderly development of social capital and financial capital and the proportion of direct financing, so as to better meet the diversified and convenient financial service needs of the society, and help improve the ability of the capital market to serve the real economy.” Pang Ming, chief economist and chief strategic analyst of Huaxing securities (Hong Kong), said in an interview with Securities Daily.
In recent years, the scale of institutional investors in the A-share market has continued to expand Soochow Securities Co.Ltd(601555) research report shows that as of December 2021, the market value of institutional holdings represented by public offering, foreign investment and private placement has reached 44% (excluding ordinary corporate Holdings), which is a significant increase from 30% in 2015.
Pang Ming believes that with the comprehensive deepening of capital market reform, the regulators have continuously improved the medium and long-term capital market environment through policies, laws, technology and other aspects.
“At present, the most anticipated and potential institutional investors in the market are the funds from the multi-level endowment insurance system,” Chen Li said
According to public data, by the end of 2021, the equity investment amount of basic endowment insurance fund was 1.46 trillion yuan, the equity investment amount of enterprise annuity was 2.6 trillion yuan, and the equity investment amount of occupational annuity was about 1 trillion yuan. The total amount of the three items was about 5.06 trillion yuan, accounting for 6% of the total market value of a shares.
At the same time, the problem of providing for the aged brought by the aging population is becoming more and more prominent. Compared with the first pillar of basic old-age insurance that has covered more than one billion people, the second and third pillars representing private pensions still have a lot of room for development, especially the third pillar of individual pensions, which is still in the ice breaking period.
“At present, there is still a gap in the proportion of funds from China’s multi-level endowment insurance system entering the stock market compared with developed countries with mature financial mechanisms. Increasing the proportion of equity investment of these funds will help broaden their sources of income; at the same time, these long-term funds can also become an important ‘stabilizer’ of the stock market and finally form a win-win situation.” Chen Li said.
Pang Ming also believes that insurance funds, basic pension funds, enterprise annuities, social security funds, bank financial management and various asset management products have the characteristics of long investment cycle, low transaction frequency and stable investment style. Attracting these capital into the market will play an important supporting role in the stable and healthy development of the A-share market.
Chen Li believes that in order to promote institutional investors to increase their shareholding ratio, we should first appropriately relax the market entry threshold and appropriately increase the upper limit of the proportion of equity assets invested in basic endowment insurance funds, enterprise annuities, insurance funds and other funds. At the same time, we should do a good job in market entry guidance and improve supporting regulatory measures.
“We should continue to guide the rational and orderly investment and financing of the securities market, further improve the quality of listed companies, gradually establish a long-term assessment mechanism for institutional investors, promote professional institutions to improve their investment management ability, and vigorously cultivate and promote the transformation of retail investors from direct shareholding to indirect shareholding.” Pang Ming thinks.
Chen Li believes that the special meeting held by the financial stability and Development Commission of the State Council is an encouragement to institutional investors who uphold the concept of value investment. He believes that the amount of funds entered the market by follow-up institutions will increase steadily.
In Pang Ming’s view, with the continuous improvement of the basic system of China’s capital market, it is expected that this year’s long-term funds are expected to bring trillion yuan of incremental funds to the A-share market.
