Billion Yuan Swap Facility Launched; Insurance Funds Await Right Moment
Recently, the swap convenience tool has officially been implemented. Several insurance institutions have actively paid attention to this tool and have begun preparations for related business operations. The swap convenience is a pioneering tool in China. Insurance institutions are urgently studying policy details, accelerating system construction, and strategy reserves. Insurance institutions will combine the actual situation of insurance funds, flexibly use the swap convenience tool, formulate reasonable investment and financing strategies, and improve the efficiency of insurance fund utilization.
So far, 20 securities and fund companies have been approved to participate in swap convenience operations, and there are no insurance company projects that have been implemented. Analysts believe that the use of this tool depends on the institutions' willingness to increase holdings in the stock market, judgment of investment opportunities, restrictions on leverage ratios, the nature of liabilities, and income requirements. At present, the risk preference for equity investment of insurance companies and other non-bank institutions is generally low, and equity allocation is mainly focused on controlling positions, buying high dividend stocks, and preventing risks. Swap convenience provides financing capabilities, but the investment risk is still borne by non-bank institutions, and the actual usage situation remains to be observed.
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In the long run, industry insiders expect that the swap convenience tool will promote the entry of medium and long-term funds, including insurance funds, into the market, maintain the stability of the capital market, and promote the high-quality development of the capital market.
"Swap for Swap" does not expand the scale of base money.
The People's Bank of China recently announced that it has decided to create the "Securities, Fund, and Insurance Company Swap Convenience" to support qualified securities, fund, and insurance companies to swap high-quality liquidity assets such as national bonds and central bank bills from the People's Bank of China with assets such as bonds, stock ETFs, and Shanghai and Shenzhen 300 constituent stocks. The first phase of the operation scale is 500 billion yuan, and the operation scale can be further expanded according to the situation.
Previously, Pan Gongsheng, the governor of the People's Bank of China, stated at a press conference held by the State Council Information Office that there is a big difference in credit level and liquidity between national bonds, central bank bills, and other assets held by market institutions. Many institutions have assets in hand, but the liquidity is poor. By swapping with the central bank, they can obtain higher quality and high liquidity assets, which will greatly enhance the fund-raising ability and stock increase ability of the relevant institutions. The funds obtained through swap convenience can only be used for investment in the capital market.
Wang Guojun, a professor at the School of Insurance, University of International Business and Economics, told reporters: "The creation of swap convenience is beneficial to the three major categories of non-bank financial institutions, namely securities, funds, and insurance companies. It is a long-term institutional arrangement and a long-term mechanism to enhance the inherent stability of the capital market, which is conducive to effectively maintaining the long-term stable development of China's capital market. The first phase of 500 billion yuan can provide tens of billions of yuan of incremental funds for the capital market, and this is just an 'appetizer'. More funds may come continuously according to market demand in the future, and its impact should not be underestimated."
Wang Yi, the chief economist of Great Wall Securities, also believes that through the swap convenience tool, the central bank can provide liquidity support for financial institutions, especially in market adjustments or situations of liquidity shortage, to help stabilize market sentiment. In the long run, this shows the regulatory level's attitude towards maintaining financial market stability, which is conducive to improving the risk management ability of the financial system; in addition, it is conducive to promoting financial innovation and serving the high-quality development of the real economy.
It is worth noting that the swap convenience adopts the "swap for swap" form and will not expand the scale of base money.
Xu Zhong, the vice chairman of the National Association of Financial Market Institutional Investors, said that there is no base money issuance in the implementation process of swap convenience, there is no "balance sheet expansion", and it is not the so-called "central bank entering the market". From the principle of operation, it enhances the financing and investment ability of relevant institutions through the "swap for swap" form and achieves liquidity support. Financial regulatory authorities will make strict requirements on the qualifications and conditions of relevant institutions and set scientific discount rates.Specifically, the People's Bank of China (PBOC) entrusts specific primary dealers in open market operations (China Bond Credit Enhancement Company) to conduct swap transactions with securities, fund, and insurance companies that meet the conditions set by industry regulators. The swap term is one year, with the possibility of extension depending on the situation. The swap rate is determined through a bidding process by participating institutions. Eligible collateral includes bonds, stock ETFs, constituents of the Shanghai-Shenzhen 300 Index, and public REITs, with discount rates set according to the risk characteristics of the collateral in different tiers. Funds obtained through this tool can only be invested in the capital market, used for investment in stocks, stock ETFs, and market-making activities.
Insurance institutions are actively preparing.
Many institutions have swiftly taken action. As of October 18, 20 securities and fund companies have been approved to participate in swap convenience operations, with the initial application amount exceeding 200 billion yuan.
Furthermore, reporters have learned from several insurance companies and insurance asset management companies that insurance funds have actively paid attention to this tool and have begun preparations for related business operations.
Su Jiang, Chief Investment Officer of China Pacific Insurance, stated that China Pacific Insurance will combine the company's investment strategy to deeply study the application scenarios of swap convenience business, fully leveraging the role of long-term funds and patient capital in the capital market.
PICC Asset Management Company indicated that after the details of the swap convenience tool were introduced, the company quickly studied the specific policies, strengthened communication with financial regulators, ensured a thorough understanding of the policies, and accelerated the establishment and improvement of internal related systems and business processes to ensure the safe implementation of the new tool, fully leveraging its superiority and flexibility.
A responsible person from China Life Insurance told reporters: "For insurance funds, the swap convenience tool is an innovative business. As a professional institutional investor, insurance funds are strengthening communication with financial regulators, intensifying policy research efforts, clarifying the details and key points of the policies, accelerating the construction of business systems, and timely researching and proposing strategic reserves to fully prepare for the development of related businesses."
The Chief Investment Officer of a small and medium-sized insurance company told reporters that the company is studying the tool and has not yet applied for the swap convenience tool, looking forward to subsequent details and supporting measures regarding the participation of insurance companies in swap convenience.
In addition, when using the swap convenience tool, insurance institutions will develop reasonable investment and financing strategies based on the actual situation of insurance funds to improve the efficiency of insurance fund utilization.
A responsible person from China Life Insurance stated that in the process of implementing the central strategic deployment, it is necessary to develop investment and financing strategies that are in line with the company's characteristics and requirements, taking into account the actual situation of asset-liability structure, solvency constraints, medium and long-term allocation strategies, requirements for income stability, and equity allocation ratios. By flexibly using the swap convenience tool, it is possible to "activate the stock, use the increment well," improve the efficiency of insurance fund utilization, and enhance the ability to serve the high-quality development of the real economy.PICC Asset Management believes that the swap convenience tool contributes to the construction of a safe, standardized, transparent, open, vibrant, and resilient capital market. It is one of the strong measures for financial regulatory authorities to enhance the inherent stability of the capital market. As institutional investors, they should view the long-term development of the capital market with a more positive and optimistic attitude, strengthen strategic determination, increase investment in assets that align with the national strategic direction, and effectively enhance the role of insurance funds in supporting the high-quality development of the real economy and the capital market. While achieving the long-term absolute return investment goals of insurance companies, it is necessary to develop investment and financing strategies that adapt to their own needs and market environment in combination with market conditions and asset-liability characteristics, flexibly apply the swap convenience tool, improve the efficiency of fund use, and achieve the goal of "activating existing resources and optimizing new allocations".
The usage situation remains to be observed
So far, no insurance companies have implemented swap convenience operations. Experts such as Dai Zhifeng, the head of the research institute of Zhongtai Securities, believe that the overall risk preference for equity investment by insurance companies and other non-bank institutions is relatively low, with equity investment mainly focusing on controlling positions, allocating high dividend stocks, and preventing risks. The swap convenience provides financing capabilities, but the investment risk is still borne by non-bank institutions, and the actual usage situation remains to be observed.
The research team of CICC believes that the use of the swap convenience tool needs to be based on the institution's independent decision-making and application. Therefore, the usage of this tool depends on the institution's willingness to increase holdings in the stock market, judgment of investment opportunities, leverage restrictions, the nature of the liability side, and return requirements.
Several insurance company officials revealed to reporters that they are still in the policy research stage regarding swap convenience operations. Equity investment is affected by many factors and needs to be considered comprehensively in combination with the company's capital level and compliance and risk control requirements.
Industry insiders told reporters that insurance funds have not generally "top-configured" equity assets, and it is expected that the demand for application and use of swap convenience tools will be limited in the short term. Moreover, insurance companies have continuous and stable premium income and do not lack investment funds. In addition, insurance funds are more cautious when allocating equity assets, and factors such as accounting, solvency, and performance assessment will all constrain the equity investment of insurance funds.
Zhu Hualei, a senior investment consultant at Jufeng Investment Consulting, said that as one of the important institutional investors in the capital market, insurance funds pursue stable investment returns and will consider the possibility and rationality of increasing equity allocation through swap convenience transactions based on the proportion of equity assets in their asset allocation. Although the swap convenience has enhanced the financing capabilities of insurance institutions, the investment risk is still borne by the insurance institutions. If insurance funds have different views on the long-term trends and short-term fluctuations of the market, or if they hope to avoid potential market risks, they may use this tool cautiously.
In the long term, many industry insiders predict that the swap convenience tool will promote the entry of medium and long-term funds, including insurance funds, into the market, maintain the stability of the capital market, and promote the high-quality development of the capital market.
Looking to the future, industry insiders believe that the development direction of the swap convenience tool is closely related to factors such as the global economic situation, financial market reform, and changes in regulatory policies. With the continuous improvement of financial technology innovation and regulatory systems, the swap convenience tool is expected to further play the role of a market stabilizer, providing non-bank institutions with a more efficient, transparent, and low-cost leverage path. Under different economic scenarios, non-bank institutions should adjust their use strategies for swap convenience tools flexibly according to the situation.