After their worst weekly drop in five months last week, Chinese stocks are back with a vengeance on Monday. The benchmark CSI 300 index has closed up 3.1% on Monday, with financials leading the way on gains of 4.5%. China has continued its liberalization of the financial sector, announcing that it will allow insurance companies to invest a greater share of their assets in equities.
The move is an attempt to bring greater stability to Chinese stock markets, which are currently dominated by retail traders. That has led to intense rallies and crashes. China's insurers, which are currently capped at holding 30% of their assets in equities, will now have that cap raised to 45% of assets, the China Banking and Insurance Regulatory Commission announced on Friday.
The regulator said insurance companies will not be allowed to own more than 10% of the shares of any one particular company.
On Monday, China Life Insurance (LFC) saw its shares climb by the 10.0% limit, as did New China Life Insurance, with China Pacific Insurance Group (CHPXF) up 6.4% and China Ping An Insurance Group (PNGAY) up 6.1%.
Chinese stocks and the CSI 300 lost 4.4% last week. Despite official data showing the Chinese economy returned to growth in Q2, Chinese stocks had their worst weekly showing since February at the height of China's Covid-19 first wave.
International investors sold off stocks in Shanghai through that market's "stock connect" link to Hong Kong, with a record day's selling volume on Tuesday, seeing net selling of 17.4 billion yuan (US$2.5 billion). Overseas investors have been strong buyers of mainland stocks in recent weeks, through Hong Kong's connection to the walled-off stock markets in Shanghai and Shenzhen.
China promised to open its capital markets to international investors when it achieved accession to the World Trade Organization in 2001. But it has taken its sweet time going about it.
As of April 1, China started allowing foreign securities companies to set up wholly owned subsidiaries in China, and to buy full ownership of Chinese securities companies.
China's attempt to create a growth-oriented Nasdaq-style market celebrates its birthday this week. The STAR Market will mark one year of operation on Tuesday, with the market operator launching the Star Market 50 Index to reflect the performance of the 128 stocks listed on it, with a total market capitalization of 2.43 trillion (US$347 billion).
Last week, it secured China's largest stock market listing in a decade, with the secondary listing on the STAR Market of China's largest chipmaker, Semiconductor Manufacturing International Corp. (SIUIF) has its primary listing in Hong Kong, but listed at four times the price of its Hong Kong equivalent when it listed in Shanghai on Thursday.
The prospect of opening up a share sale to mainland Chinese investors has caused its Hong Kong listing to more than double, up 142% so far in 2020. The Shanghai offering raised US$6.6 billion, with the retail portion oversubscribed by 500 times.
The company delisted its shares from the New York Stock Exchange in June 2019, blaming low trading volumes and high costs. But its move anticipates the pressure that will now face Chinese companies listed in the United States, where pressure is intensifying for them to improve their governance and disclosures following a string of accounting scandals.
Semiconductor Manufacturing International, with a market cap of US$44.5 billion, is still light years behind rivals such as Taiwan Semiconductor Manufacturing Corp. (TSM) . But the Beijing government is intent on developing a domestic chip industry, with U.S. sanctions preventing TSMC from selling chips to the Chinese telecom Huawei Technologies, even if they are made outside the United States but using U.S. technology.