Guotai Junan: Guidelines for incremental funds entering the market have been further clarified, which is overall beneficial for non-bank entities.

Guotai Junan released a research report stating that the implementation plan for promoting the entry of mid- to long-term funds into the market and the related work deployment of the press conference will facilitate the flow of mid- to long-term funds into the market. It is expected that the continuous introduction and implementation of policies will bring incremental benefits to the capital market. It is suggested to increase holdings of securities firms, financial information service providers, and pure life insurance companies with greater flexibility on equity investment to benefit from the influx of incremental funds. Event: On January 23rd, the State Council Information Office held a press conference to introduce the efforts to promote the entry of mid- to long-term funds into the market and promote the high-quality development of the capital market. Key points from Guotai Junan: The press conference further provided specific guidance on promoting the entry of mid- to long-term funds into the market. On January 22nd, the Central Financial Office, China Securities Regulatory Commission, Ministry of Finance, Ministry of Human Resources and Social Security, People's Bank of China, and the Financial Regulatory Bureau jointly issued the "Implementation Plan for Promoting the Entry of Mid- to Long-term Funds into the Market." The press conference further made work arrangements for guiding the entry of mid- to long-term funds into the market and optimizing the assessment mechanism for mid- to long-term funds. The press conference also introduced measures related to the entry of incremental funds into the market, including initiatives for commercial insurance funds, such as long-term stock investment pilots, increasing the proportion of new premiums entering the market, and implementing long-term assessments. It is expected to bring in 500 billion yuan of incremental insurance funds, improving the stability of insurance funds' stock investments through long-term assessments and long-term stock investment pilots. 1) The bank believes that "new premiums" should be the insurance funds available for investment after deducting claims and expenses, which can be roughly understood as the growth in the balance of insurance funds available for investment (excluding the impact of investment income) since the beginning of the year. Assuming a growth of 16%/14% in the balance of insurance funds available for investment between 2024 and 2025, and considering constraints such as the solvency and liquidity of insurance companies, it is estimated that the main beneficiaries with potential for equity increase are large insurance companies represented by listed insurers, assuming that large insurance companies account for about 55% of industry premiums, and based on the goal of investing 30% of "new premiums" in A shares, it is estimated that the industry will bring in approximately 500 billion yuan of incremental funds. 2) It is specifically stated that the weight of the long-term indicator of the net asset return rate of state-owned insurance companies will be raised to no less than 60% for a three to five-year period, while relaxing short-term performance assessment requirements marginally. It is expected that the utilization of funds by insurance companies will focus more on achieving long-term investment returns. 3) By setting up securities investment funds to accelerate the promotion of long-term stock investment pilots, if long-term equity investments are accounted for in financial statements, it can effectively avoid the impact of investment income fluctuations on current financial statements, alleviate the performance pressure on insurance companies caused by investment fluctuations, and enhance the stability of equity allocations. Risk warning: Downward trend in long-term interest rates; volatility in equity markets; regulatory policy uncertainties.