CHINA has taken a move that effectively allows insurance firms to make longer-term investment in shares, adding to a drumbeat of support measures to revitalize the country’s stock market.

The Ministry of Finance will from now on evaluate insurers’ return on net assets based on a combination of a three-year cycle and a one-year time frame, instead of just the latter previously, it said in a notice released Monday.

The ministry said that the change, effective immediately, is aimed at guiding long-term capital to play a stronger role of market stabilizer.

The move is the latest in a series of steps taken by policymakers to prop up the flagging stock market.

“This is an opportune time for insurance funds to add positions in stocks, especially following buying by Central Huijin and the special approval of issuances of sovereign bonds, just as fundamentals are starting to improve,” said Li Zhan, chief economist at Shenzhen-based China Merchants Fund Management Co.’s research department.

The finance ministry’s announcement could drive about 2.6 trillion yuan (US$355 billion) into stocks and equity mutual funds, if insurers raise their equity investment by three percentage points and deploy 16% for such investment, Li estimates.

Regulators have intensified efforts to restore investor confidence in the stock market in recent months.

They included buying of exchange-traded funds by Central Huijin Investment Ltd., a unit of the country’s sovereign wealth fund, as well as purchases by major mutual funds of their own equity-focused products, lower transaction costs and tighter oversight of short selling.

The finance ministry said in the same notice that insurance firms should set reasonable investment targets and properly balance risk and return, as well as refrain from making high-risk investments. Those that don’t meet certain criteria in areas including solvency are prohibited from making new investment.

Under current regulations, China’s insurance firms are permitted to invest between 10% and 45% of their total assets in equities based on their solvency ratios. (SD-Agencies)