Influx of Long-Term Capital Expected
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The landscape surrounding long-term capital in financial markets, particularly concerning investment from insurance funds and social security funds, is steadily evolvingThis transformation not only encourages a more robust capital market ecosystem aimed at fostering long-term investments but also instills greater confidence in market participantsThese developments are crucial for injecting fresh liquidity into the capital markets, thereby propelling them toward higher-quality growth.
Investment firms such as GF Securities have articulated that the influx of long-term funds is pivotal in optimizing the investor demographicThis shift aims to encourage a culture of value and long-term investment, ultimately reducing market volatility and speculation and thus enhancing investor confidenceSimilarly, China Huafu Securities posits that these changes will facilitate an improved ecosystem within the capital markets, laying the groundwork for a sustainable investment framework characterized by long-term and patient capital, vital for the ongoing development of the A-share market.
As for the influx of capital, public mutual funds currently lead the market in terms of institutional investment, while other sources of long-term funds display relatively modest scalesThus, for the capital market to flourish, there is an urgent need for more incremental capital to enter.
According to estimates by Founder Securities, by the end of the third quarter of 2024, insurance capital allocated to stock and fund investments is projected to be around 4.11 trillion yuan, maintaining a robust five-year compound growth rate of 11.7%. This represents approximately 12.8% of the total funds managedOver the past three years, this figure has remained relatively stableLooking ahead, aided by supportive policies such as improvements in solvency regulations and long-term assessment frameworks, the proportion of insurance funds directed toward equities may see further enhancement, ushering in an era of incremental patience capital for the A-share market
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Should the investment pace of insurance funds accelerate, the projected balance for stocks and funds by 2027 could reach an impressive range between 5.32 and 6.49 trillion yuan, translating to an estimated annual increment of approximately 0.39 to 0.78 trillion yuan.
Data from Wind indicates that by the third quarter of 2024, the total value of A-shares held by mutual funds and fund management companies (including public funds and specialized fund accounts) was approximately 1.82 trillion yuan, down by 1.18 trillion yuan compared to the previous half-yearIn contrast, insurance companies increased their holdings to 1.56 trillion yuan, marking a gain of 353.44 billion yuanSocial security funds maintained a value of roughly 459.9 billion yuan, reflecting an increase of 47.75 billion yuan, while corporate pension funds remained stable at around 860 million yuanThe total market capitalization of A-shares stood at 78.4 trillion yuan, with a circulating market value of 71.9 trillion yuan, indicating a substantial potential for growth in these long-term investment portfolios.
Huafu Securities estimates a significant surge in public fund investments over the next three years, with projections of an annual increase of 180 billion yuan, 200 billion yuan, and more than 220 billion yuan from 2025 to 2027, respectivelyObserving the newfound premiums in the insurance sector, predictions show that 2024 might witness an addition of over 140 billion yuan in new insurance premiums compared to 2023, suggesting a capacity for insurance funds to scale up their equity allocations considerably.
Dongwu Securities highlighted the extent of the capital pool represented by long-term funds, forecasting that this substantial liquidity wave could invigorate the capital markets significantlyAs of the third quarter of 2024, the cumulative investment assets of life and property insurance companies reached 31.1 trillion yuan, with stock, mutual funds, and long-term equity allocations amounting to 2.3 trillion yuan, 1.8 trillion yuan, and 2.4 trillion yuan, respectively
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This translates to percentages of 7.5%, 5.7%, and 7.8%. Furthermore, as of 2023, the total assets of social security funds were recorded at 3.0 trillion yuan, while the operating scale for basic pension insurance funds stood at 2.3 trillion yuan, followed by corporate and occupational pensions aggregating to 5.75 trillion yuan by 2023, along with public funds managing a grand total of 32.3 trillion yuan, of which stock and equity mutual funds accounted for 6.9 trillion yuan or 21.4%.
In a more optimistic scenario, Huabao Securities predicts that public mutual funds and insurance capital could collectively funnel an annual influx of over one trillion yuan into the A-share marketThis growth trajectory includes projections of 586 billion yuan in new public fund investments by 2025, alongside significant long-term equity investment trials from insurance funds of no less than 100 billion yuanIt is estimated that major state-owned insurance firms may contribute upwards of 500 billion yuan in new premium capital to the market.
The implications of these developments are evidently favorableChina Galaxy Securities asserts that the current macroeconomic policy direction, coupled with the structural features of economic recovery, is likely to benefit three specific areas chiefly driven by the influx of long-term funds: first, the production of new valueLong-term capital prioritizes national strategic needs and the long-term development of social economic sectors, providing substantial financial support for technological and industrial innovations, thus acting as a catalyst for emerging productive forcesSecond, the emphasis on ‘two heavies and two news’ aligns well with the inherently low-risk, long-term yield investment attributes of long-term funds.
Investments targeting the ‘two news’ sectors can substantially enhance corporate efforts toward technological advancements, market expansions, and equipment upgrades
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