Incremental funds may reach 2 trillion, financial institutions actively evaluate the "new policy for medium and long-term funds entering the market"

On January 23, the State Council Information Office held a press conference to further communicate the implementation plan for promoting medium- and long-term funds to enter the market, which was jointly issued by seven departments the day before. Leaders from regulatory agencies introduced the situation regarding the vigorous promotion of medium- and long-term funds entering the market and the promotion of high-quality development of the capital market.

Financial institutions immediately took action to study and analyze the relevant methods and provide opinions. Many institutions believe that the relevant plan is expected to bring a considerable inflow of funds in the future and greatly improve the liquidity of the A-share market.

Four Channels for Fund Inflow

The Shenwan Hongyuan strategy team estimated the potential scale of funds and market impact from channels and measures such as public funds, insurance funds, repurchase increases, and dividends from listed companies.

In terms of public funds, based on the goal of at least a 10% annual increase in the market value of A-shares held by public funds, Shenwan expects that by the end of 2027, the market value of A-shares held by public funds is expected to slightly rise to 7.7% (7.6% by the end of 2024).

Regarding state-owned insurance companies, an analysis was conducted based on the requirement that "large state-owned insurance companies invest 30% of their newly added premiums each year in A-shares starting from 2025." If the stock and fund balance changes of large state-owned insurance companies (China Life, New China, PICC, Taikang) in the first three quarters of 2024 increase to 30%, assuming these companies maintain their market share in the industry, theoretically, the new stock investment in the first three quarters of 2024 would be 337.7 billion yuan, with the proportion of all insurance funds in stock and fund investments rising to 14.3% (based on stock volume).

In terms of repurchase increases, according to the financial institutions mentioned at the press conference, they have reached cooperation intentions with nearly 800 listed companies and major shareholders, with over 300 listed companies already announcing, with a total amount exceeding 60 billion yuan. As of January 22, 2025, a total of 320 listed companies announced plans for repurchase/increase, involving an amount of 77 billion yuan. Among them, private enterprises are more active, with a higher proportion of special loans, and it is expected that private enterprises will further increase repurchases through special loans.

Regarding A-share dividends, based on the dividend statistics involved this year (for example, 2024 includes the 2023 annual report dividends + 2024 first three quarters dividends + special dividends within the year), the total amount of dividends involved by A-share listed companies in 2024 is expected to reach a new high of 2.39 trillion yuan, with the proportion of dividend-paying companies rising to a new high of 74.1%. The dividend ratio of A-shares has been elevated since 2022, with the TTM dividend ratio for Q2 2024 at 45.9%, the highest since 2010, slightly declining by the end of Q3 2024 but still the second highest since 2010.

Incremental Funds Close to 2 Trillion Yuan

Wu Zhaoyin and Chen Mengyun from Dongwu Futures analyzed that the total incremental scale of medium- and long-term funds, including insurance funds, public funds, social security funds, and dividends, may reach 1.82 trillion yuan, specifically including the following aspects:

1. Insurance funds: In the first 11 months of 2024, premium income increased by 11.8% year-on-year. Based on this growth rate, the total new premium income for 2024 is estimated to be approximately 606.3 billion yuan. If 30% of the newly added premiums each year are used to invest in A-shares, the incremental funds for 2025 will be approximately 180 billion yuan.

2. Public funds: According to the 2024 annual report, the A-share holdings of public funds are approximately 5.9 trillion yuan. Assuming that the A-share stocks held by public funds grow by at least 10% annually over the next three years, the incremental funds for 2025 will be approximately 590 billion yuan, mainly expected to flow into the market through ETFs.

3. Social security funds: By the end of 2024, the investment operation scale of China's basic pension insurance fund has reached 2.3 trillion yuan. If the stock investment ratio increases by one percentage point, the incremental funds will be approximately 23 billion yuan. By the end of 2023, the total assets of the national social security fund amounted to 3 trillion yuan. If the stock investment ratio increases by one percentage point, the incremental funds will be approximately 30 billion yuan, totaling about 53 billion yuan.

4. Dividends: In 2024, listed companies are expected to distribute dividends totaling 2.4 trillion yuan. From the overall market perspective, the circulating market value generally accounts for 80% of the total market value, and the free-floating market value accounts for about 55% of the circulating market value, meaning the free-floating market value is approximately 44% of the total market value. It can be roughly calculated that about 40% of the dividends from listed companies will remain in the secondary market, so the funds retained in the secondary market from dividends in 2024 will be approximately 1 trillion yuan.

In total, the incremental funds from insurance funds, public funds, social security funds, and listed company dividends in 2025 are expected to be approximately 1.823 trillion yuan, which is a considerable scale of incremental funds, greatly improving the funding situation in A-shares.

Helps Reduce Short-term Market Volatility

E Fund stated that the "Implementation Plan" focuses on addressing the bottlenecks and obstacles for the entry of medium- and long-term funds such as public funds, commercial insurance funds, and pension funds into the market. It proposes a series of specific measures and makes institutional arrangements suitable for long-term investment from aspects such as assessment systems, investment policies, and market ecological construction, such as increasing the investment ratio in A-shares, extending assessment periods, guiding listed companies to increase share repurchase efforts, and implementing a policy of multiple dividends per year.

This will further enhance the equity allocation capability of medium- and long-term funds, help steadily expand investment scale, optimize market funding supply and investor structure, reduce short-term market volatility, and enhance the inherent stability of the capital market.

It will also help medium- and long-term funds improve long-term investment returns, better practice the concepts of long-term investment, value investment, and rational investment, promote coordinated development on both ends of investment and financing, and foster a capital market ecology characterized by "more long-term money, longer long-term money, and better returns," achieving a virtuous cycle of preserving and increasing the value of medium- and long-term funds, stable and healthy operation of the capital market, and high-quality development of the real economy.

Beneficial for Capital Market Ecological Construction

Jia Shi Fund believes that the entry of medium- and long-term funds into the market is a long-term strategic task for the reform, opening up, and stable development of China's capital market, as well as a systematic and continuous project.

The implementation of this plan can further optimize the ecological construction of the capital market, forming a good situation of multi-party "collaborative win-win." It provides all investors with a clear expectation, and the consensus on expectations is the foundation and engine for the continuous healthy and stable development of the market.

Currently, the inherent demand for equity markets from various types of medium- and long-term funds continues to rise. Investment opportunities driven by the development of new productive forces are constantly enriching, coupled with the overall low valuation of A-shares, the investment attractiveness of A-share equity assets is further increasing, and it can still bring excellent long-term investment returns to a wide range of investors.

Risk warning and disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are consistent with their specific circumstances. Investment based on this is at their own risk