Industrial: Risk capital entering the market is fully dismantled.

Industrial released a research report stating that since the beginning of the year, the performance evaluation methods of state-owned insurance companies have continued to improve, and the environment for equity investment policies of insurance funds has gradually improved, driving the insurance funds into the market fast lane. However, compared to the beginning of 2024, dividend assets that meet the aesthetic of insurance funds have experienced a significant increase. At the same time, the market has overcome the problem of insufficient incremental funds, and various assets have welcomed opportunities for valuation repair. Faced with such a market environment, insurance funds have shown different characteristics in the process of increasing their allocation of equity assets, and the organization will analyze the investment characteristics of insurance funds this year from five data dimensions. 1. Insurance fund balance: Insurance funds enter the market fast lane, increasing holdings of stocks by 200 billion yuan in the second quarter. The proportion of stocks held in the balance of insurance funds increased by 0.4 percentage points compared to Q1, reaching 8.8%. According to the estimated yield of A+H dividend assets, insurance funds had a net inflow of around 200 billion yuan in the second quarter, significantly increasing their allocation to stocks for five consecutive quarters. Based on an estimate of 30% of new premium income, insurance funds are expected to increase their allocation to A+H stocks by 30 to 40 billion yuan in the second half of the year. In early 2024, six ministries jointly issued a plan to vigorously promote the entry of long-term funds into the market, proposing that "major state-owned insurance companies should play a leading role, striving to invest 30% of new premium income in the stock market each year." It can be seen that this year, the scale of net inflow of stocks by insurance funds is significantly correlated with the growth in new premium income. Considering a 5% year-on-year growth in new premium income in the second half of the year, it is estimated that insurance funds will continue to increase their allocation to A+H stocks by 30 to 40 billion yuan in H2. The way insurance funds participate in equity assets is gradually shifting from outsourcing to direct investment. Before Q3 2024, the scale of stocks and funds held by insurance funds showed a converging growth trend. However, since Q4 2024, the scale of stocks held by insurance funds has steadily increased, while the scale of funds held has been declining, reflecting a shift in the way insurance funds participate in equity investments from relying on external managers to direct investments. 2. Insurance funds' major shareholders: Dividend-focused strategy, expanding asset categories In the second quarter, insurance funds overall increased their holding of dividend assets, reduced their holdings in energy stocks, and made internal adjustments in technology growth and high-end manufacturing, but overall increased their allocation to technology. From an industry and individual stock perspective, insurance funds increased their holdings in banks (Bank Of Hangzhou, CITIC BANK, Bank Of Suzhou), telecommunications (China Telecom Corporation, ZTE Corporation, China Mobile Limited), and media (China South Publishing & Media Group, Jiangsu Phoenix Publishing & Media Corporation, Shandong Publishing & Media), while reducing holdings in coal (Huaihe Energy, Jizhong Energy Resources, Pingdingshan Tianan Coal. MiningCo.,Ltd.), electronics (Suzhou Dongshan Precision Manufacturing, JCET Group Co., Ltd.), and defense military industry (China Aerospace Times Electronics, AECC Aero-Engine Control). The allocation strategy of insurance funds focuses on high dividends, while facing the continuous increase in traditional dividend assets such as banks and utilities, their allocations are gradually expanding to include telecommunications, food and beverage, automotive, media, non-ferrous metals, and construction decoration, which are broadly considered as dividend assets. In the second quarter of this year, insurance funds increased their holdings in the top twenty companies, with only three banks, a significant decrease compared to previous periods. However, the stocks they increased their holdings in still had high dividend attributes, with an average dividend yield of 3.80% for the top 20 stocks, and 3.15% for the top 50 stocks. It is worth noting that a significant number of the top 20 stocks being reduced are in the cyclical resources industry such as petroleum, petrochemicals, and coal, which, considering the sustainability of their dividends, leads to a significantly lower dividend yield for the top 20 stocks after excluding them. 3. Insurance funds' shareholding & major shareholders of Hong Kong-listed companies: Preference for Hong Kong assets, driving the rise of dividend assets in Hong Kong Since the beginning of the year, insurance funds have accelerated their shareholding in listed companies compared to last year, and the proportion of holdings in Hong Kong stocks has significantly increased. As of August 31, insurance funds have acquired 28 listed companies this year, exceeding the total number of acquisitions last year, with 23 of them being Hong Kong-listed companies, a significant increase compared to previous years. In an environment of declining bond yields and significant increases in traditional dividend assets, insurance funds are allocating more to dividend assets in Hong Kong with higher dividend yields and better cost-effectiveness, making them a key component of the continuous significant inflow of funds from the south this year. Despite a temporary slowdown in inflows due to tariff impact in April, insurance funds have been increasing their allocations to Hong Kong stocks throughout the first eight months of the year, driving the core growth of dividend assets in Hong Kong. According to the data disclosed by the Hong Kong Stock Exchange, insurance funds accelerated their investments in Hong Kong banks in the first quarter, with inflows into Hong Kong stocks slowing down in April. However, with state stabilization measures boosting market confidence from May onwards, insurance funds re-entered the channel for increasing their holdings of dividend assets in Hong Kong, and in early August, Ping An made a bid for China Life Insurance and China Pacific Insurance. In addition, based on the proportion of Hong Kong-listed company shares held by insurance funds and their performance, it can be seen that insurance funds' investments in Hong Kong have driven the increase in dividend assets in Hong Kong. 4. ETF holders: Insurance funds slow down in allocating broad-based index ETFs in the first half of 2025, focusing more on using index investment tools to participate in growth sector investments In the first half of 2024, insurance funds reached a peak in ETF holdings, with a further confirmation that since the second half of 2024, insurance funds have shifted from using external managers and index investment tools to direct investments. In the first half of 2025, insurance funds held ETFs totaling 214.9 billion yuan, an increase of 33 billion yuan from the second half of 2024, indicating a slowdown in the overall growth of ETF allocations. Although insurance funds have slowed down in their overall allocation of ETFs, there have been significant structural adjustments, with an increase in the allocation to CSI A500 and ETFs in industries such as TMT, manufacturing, and securities, while reducing allocations to the CSI 300 and dividend theme ETFs. In the first half of this year, insurance funds significantly increased their allocation to the CSI A500 ETF, but this needs to be looked at from two perspectives: one is that considering a large number of CSI A500 ETFs issued after November last year without 2024 annual report data, insurance funds' allocation to the CSI A500 ETF may have only experienced a slight increase. However, given the consistent decline in the scale of the CSI A500 since the beginning of the year, the proportion of the CSI A500 held by insurance funds has correspondingly increased to a certain extent. Secondly, insurance funds significantly reduced their allocation to the CSI 300 in the first half of 2025, and it is possible that insurance funds will replace the CSI 300 with the CSI A500 in their broad-based index ETF allocations. Comparing the composition of the CSI A500 index and the CSI 300 index, the proportion of defense and military industry, pharmaceuticals and biotechnology, power equipment, computers, and electronics is higher in the CSI A500 index, while the proportion in non-banking financial, banking, and food and beverage is significantly lower, reflecting insurance funds' shift towards seeking growth assets in their overall asset allocation, and a preference for passive investment or using external managers when investing in growth industries. Meanwhile, insurance funds significantly increased their allocation to ETFs in industries such as TMT, manufacturing, and financial real estate in the first half of 2025, accounting for about one-third of the net inflows into industry-themed ETFs. Insurance funds may use industry-themed ETFs as tools for short-term trading operations. In the first half of this year, industry-themed ETFs saw a total net inflow of 60.9 billion yuan, with insurance funds contributing 23.5 billion yuan to the increase, making a significant contribution to the growth of industry-themed ETFs in the first half of the year. In terms of industry-themed ETF categories, there were significant net inflows into TMT, manufacturing, financial real estate, and cyclical ETFs, with increases of 12.9 billion yuan, 11.2 billion yuan, 5.7 billion yuan, and 3.6 billion yuan respectively, representing a month-on-month increase of +139%, +148%, +68%, and +155%. Taking the example of the Science and Technology Innovation Chip ETF, insurance funds as one of the top ten holders had a scale of 1.04 billion yuan in the second half of 2024, and by the first half of 2025, seven of the top ten holders were insurance funds, with the scale rapidly growing to 4.83 billion yuan. 5. Listed insurance companies: Top insurance companies increase their stock holdings more rapidly, with a significant increase in the proportion of FVOCI stocks Listed insurance companies have accelerated their allocation of stock assets. In the first half of this year, the market value of stocks held by the five listed insurance companies on the A-share market (China Life, Ping An, PICC, Taikang, and New China) increased by 411.9 billion yuan compared to the end of last year, an increase of 28.7% month-on-month, further accelerating their growth. The top insurance companies listed on the market have increased their allocation of stock assets more rapidly, showing a trend of accelerating their allocations. In the first half of 2025, the proportion of stock assets held by the five listed insurance companies on the A-share market was 9.4%, an increase of 1.6 percentage points month-on-month, with a faster slope compared to the overall industry. Additionally, there is still a significant differentiation in the allocation proportion of equity assets among insurance companies, with those with lower allocations still having much room for improvement. The proportion of FVOCI stocks held by listed insurance companies has seen a significant increase, and it is expected that future allocations will continue to focus on dividend assets that can be included in the OCI account. In the first half of 2025, the five listed insurance companies on the A-share market increased their holdings of FVOCI stocks by 284.3 billion yuan (+62.2% month-on-month), while their holdings of FVTPL stocks increased by 127.6 billion yuan (+13.1% month-on-month). Considering the resonance of multiple factors such as the demand for liability-side allocations, the downward trend in long-term interest rates, and regulatory policies encouraging long-term funds into the market, insurance funds entering the market is still a long-term trend. The OCI account has significant advantages in reducing the impact of stock price fluctuations on insurance companies' profits and capital utilization, and it is expected that future allocations will continue to focus on dividend assets that can be included in the OCI account.