China urges sovereign wealth funds to buy more stocks amid market slump

China’s financial regulators on Thursday presented a number of measures to urge big state-owned mutual funds and insurance companies to buy more stocks as Beijing seeks to prop up a shaky stock market.

Large state-owned insurance companies should increase the size and proportion of their investment in mainland-listed stocks, and allocate 30% of their newly created premiums to buy shares, Wu Qing, chairman of the China Securities Regulatory Commission, said at a press conference on Thursday.

The pilot program, due to start in the first half of this year, will channel at least 100 billion yuan ($13.75 billion) from insurers into long-term equity investments, Wu said. He expected the program to continue to expand and inject at least “hundreds of billions of yuan” into stock purchases each year.

Mutual funds too tasked with increasing their holdings in mainland-listed stocks by 10% annually in terms of market valuation over the next three years, he said.

A consortium of six financial regulatorsincluding the securities regulator, on Wednesday for the first time published a plan to direct large funds, including pension funds, to buy more local stocks in order to “strengthen the stock market,” according to a CNBC translation of the regulator’s Chinese-language statement.

“Having institutions like insurance companies hold more Chinese stocks helps reduce volatility and create a more stable trading environment based on fundamentals,” said Eugene Xiao, head of China equity strategy at Macquarie Capital.

He suggested the latest initiative would help “establish more attractive long-term investment options” after the property market crash damaged household wealth.

The benchmark CSI 300 rose more than 1.8% after the press conference, paring the index’s decline this year to about 2.7%, according to LSEG data.

While the CSI 300 is registered 15% annual growth last year, the index ended the year down nearly 12% from its highest levels for the year.

Beijing’s recent partial stimulus measures dashed investors’ hopes for a quick turnaround in the ailing economy, sending funds into the safety of government bonds, driving yields to record lows.

In October, the Central Bank of China launched exchange facility scheme to give insurers and brokers have easier access to buy stocks and relatively cheap central bank bills to help finance purchases and buybacks of listed companies.

Chinese companies’ dividend payments and share buybacks hit record highs last year, Wu said, while prompting listed companies to increase dividend payments ahead of China’s Lunar New Year later this month.

Wu noted that the current dividend yield of the CSI 300 has reached 3%, “which is much higher than the yield on the 10-year Treasury.” The 10-year yield was at 1.671 on Thursday.

Thursday’s announcements are expected to lead to capital inflows into China’s “value stocks,” which are considered significantly undervalued given their strong potential for future growth, according to Lei Meng, UBS China equity strategist.