Driven by supportive government policies and a strengthening market surroundings, long-term investment funds are increasingly flowing into ChinaS capital markets. This influx – including public offerings, insurance investments, and pension funds – is reshaping investment strategies and bolstering market stability, according to new data analyzed by several leading securities firms. The shift reflects a broader effort by Beijing to prioritize lasting growth and value investing over short-term speculation within the world’s second-largest economy[[1]], [[2]], and [[3]].
■Capital Markets Investment and Financing Comprehensive Reform Observation ④
Policy Guidance Fuels Value Investing as Long-Term Funds Continue to Enter the Market
◎Reporter Zhang Xue
This year has seen an accelerating influx of various long-term funds into China’s capital markets, driven by consistent policy guidance and a more favorable market environment. These funds – including public offerings, insurance investments, and pension funds – are playing a crucial role in stabilizing the market and promoting healthy development. The increased participation of these “long-money” investors is not only injecting liquidity but also influencing investment philosophies, performance evaluation, and the overall market ecosystem.
Recent institutional research confirms this trend. Data from Galaxy Securities shows that as of the end of the third quarter, actively managed equity funds held A-shares valued at 2.99 trillion yuan (approximately $413 billion USD), with a stock allocation rate of 85.62%, the highest level since 2005. This indicates a strong bullish sentiment among fund managers.
Beyond public funds, insurance companies – a significant component of long-term capital – have also been actively increasing their positions in the A-share market. According to research from Zhongtai Securities, at the end of the third quarter, insurance companies appeared among the top ten shareholders of 633 listed companies, holding a combined value of 651 billion yuan (approximately $90 billion USD).
The active deployment of insurance capital is reflected not only in the breadth and scale of their holdings but also in their significant investment returns, demonstrating the professional allocation capabilities and risk resilience of long-term funds. Data from Dongwu Securities shows that the total investment income of A-share listed insurance companies averaged an increase of over 35% in the first three quarters of 2024, with a nearly 67% increase in the third quarter alone. This performance underscores the potential for stable growth within the sector.
The accelerated entry and stable growth of these long-term funds are primarily attributable to continuous policy support and an improving regulatory environment. In January 2024, six departments, including the Central Financial and Economic Affairs Commission, jointly issued an “Implementation Plan on Promoting the Entry of Long-Term Funds into the Market,” specifically targeting insurance, social security, annuities, and public funds. Subsequently, the China Securities Regulatory Commission (CSRC) introduced a series of action plans to promote index investing and the high-quality development of public funds, emphasizing long-cycle evaluations, optimizing product structures, and strengthening alignment between fund companies and investor interests. The National Financial Regulatory Administration and the Ministry of Finance also issued documents increasing the proportion of equity assets in insurance funds and improving long-cycle evaluation mechanisms to encourage long-term holding.
These policy benefits are translating into tangible results, as evidenced by the experiences in Beijing and Shanghai. In Beijing, public funds have completed fee reductions for 838 actively managed equity products, and sales fee reforms have been officially implemented, expected to save investors a combined 10 billion yuan (approximately $1.4 billion USD) annually. Simultaneously, the proportion of equity investments has risen significantly, with fund companies in the Beijing area managing 1.94 trillion yuan (approximately $268 billion USD) in equity funds as of the end of September, a year-on-year increase of 25.56%.
Shanghai is also demonstrating strong performance in attracting and allocating long-term capital. As of the end of the third quarter, the scale of “three pillars” products – social security, annuities, and pension funds – under local public funds reached 1.5 trillion yuan (approximately $208 billion USD), a year-on-year increase of 28%. The scale of wealth management and trust company products invested in public funds increased by over 300% and 200%, respectively.
CSRC Chairman Wu Qing recently stated the need to continue creating conditions to build a market environment where long-term funds “are willing to come, stay, and thrive,” and to establish sound long-cycle evaluation mechanisms to further increase the scale and proportion of investment in A-shares. This statement aligns with the spirit of the “Fifteenth Five-Year” capital market planning expert and scholar symposium, where participants agreed on the need to accelerate the cultivation and expansion of long-term, patient, and strategic capital to encourage more long-term funds to enter the market.
As the pace of fund inflows accelerates, the market ecosystem is undergoing subtle changes. Industry experts widely believe that the accelerated entry of long-term funds has multiple positive implications for the capital market: it can mitigate short-term speculation-driven market fluctuations, enhance market resilience, and promote a shift towards value and long-term investment. By guiding capital flows towards strategic sectors such as technological innovation and advanced manufacturing, it can provide stable financial support for the real economy.
Lu Zhe, chief economist at Dongwu Securities, suggests enhancing regulatory tolerance for long-term equity investments and optimizing product registration processes to promote innovation in index products. Tian Lihui, dean of the Financial Development Institute at Nankai University, believes that more equity and ESG-themed products should be developed to meet the allocation needs of long-term funds.
Looking ahead, with the deepening of public fund reforms and a smoother “investment-management-exit” cycle, the role of long-term funds is evolving from a mere provider of capital to a wealth management partner that shares risks and benefits with investors, injecting sustained momentum into the high-quality development of the capital market and the transformation and upgrading of the real economy.
