China’s stock market suffered its worst monthly decline in more than a decade in October, and the benchmark CSI 300 fell into a bear market. Shiva Capital Group founder Hong Liang accused insurers of piling into technology stocks near their July peak before slashing positions in late September.
The accusation comes from Hong Liang, founder of Shiva Capital Group, one of China’s biggest hedge funds. In a letter to clients, he described insurers’ behaviour as "truly baffling", saying they piled into technology stocks near their July peak only to slash positions in late September.
The analysis says the latest downturn appears to have different drivers than previous sell-offs. Margin financing has already declined, and northbound turnover through Stock Connect with Hong Kong has fallen, suggesting that neither leveraged traders nor foreign hot money is behind the weakness. Instead, it identifies long-only institutional investors as a potential offender.
Beijing has dusted off its market-support playbook. The People’s Bank of China is providing low-cost funding for corporate buybacks and liquidity for institutional investors. The “national team” appears to have stepped up operations, and regulators have issued window guidance to several major insurers, requiring them to report equity holdings, refrain from cutting losses and align investment decisions with broader economic goals.
But the strategy may have limits. State-owned insurers have been responding to policymakers’ calls for them to provide more long-term capital to the stock market, but they still face pressures to manage risk and meet claims. China Pacific Insurance Group acknowledged on its latest earnings call that equity investing had become “complicated” and that portfolios needed to be managed to protect short-term returns. In the third quarter, profits at China’s five major listed insurers plunged largely because of declines in domestic stocks.
The recurring routs raise a question about whether policy missteps may be contributing to China’s poor stock market performance. Over the past decade, the domestic market has endured at least three bear runs that prompted emergency government bailouts, in 2018, 2024 and now. As Ren asks, the next time the central bank has to put out a fire, who will be left to blame?
Analysis
Why This Matters
- The rout shows that China’s strategy of using state-owned insurers as stabilisers has limits, potentially pushing Beijing toward more aggressive intervention or reforms.
- The sharp decline in insurer profits could have broader implications for the financial sector and policy credibility.
- The repeated pattern of crises and bailouts suggests deep structural issues that may not be addressed.
Background
China’s stock market has experienced three major bear runs in the past decade that required government rescues: in 2018, 2024 and the current rout. Policymakers have consistently used a mix of central bank liquidity, buyback support and informal guidance to manage downturns. State-owned insurers have been a key tool, with regulators encouraging them to increase equity holdings to provide longer-term capital.
What to Watch
- Whether the central bank expands its buyback financing facility or introduces other market-stabilisation tools.
- How insurers adjust their portfolio strategies in response to both market losses and regulatory guidance.
- Any public statements from the head of China’s securities regulator or other officials regarding market reforms.
Checked
12 claims in this story checked against 1 source: 12 supported.
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- SupportedChina’s sharemarket is in a rout, and a hedge fund founder has accused insurers over technology-stock cuts.The Age - Latest News: “China is scrambling to contain a sharemarket rout only two years after the previous rescue. ... founder Hong Liang accused the insurance firms of piling into technology stocks near their July peak, only to slash positions in late September.”
- SupportedBeijing issued window guidance to major insurers to stop cutting losses as the CSI 300 entered a bear market.The Age - Latest News: “The blue-chip CSI 300 Index has fallen into a bear market from its late-June peak”
- SupportedChina’s stock market had its worst monthly decline in more than a decade in October.The Age - Latest News: “In October, China’s stock market suffered its worst monthly decline in more than a decade.”
- SupportedThe CSI 300 fell into a bear market.The Age - Latest News: “The blue-chip CSI 300 Index has fallen into a bear market from its late-June peak”
- SupportedHong Liang, founder of Shiva Capital Group, accused insurers of buying technology stocks near their July peak and cutting positions in late September.The Age - Latest News: “In a recent letter to clients, founder Hong Liang accused the insurance firms of piling into technology stocks near their July peak, only to slash positions in late September.”
- SupportedLiang described the insurers’ behaviour as “truly baffling”.The Age - Latest News: “The behaviour was “truly baffling”, lamented the prominent investor”
- SupportedShiva Capital Group is one of China’s biggest hedge funds.The Age - Latest News: “Shiva Capital Group, one of China’s biggest hedge funds, has pointed the finger at insurers.”
- SupportedFalling margin financing and northbound Stock Connect turnover suggest leveraged traders and foreign hot money are not behind the latest weakness.The Age - Latest News: “Margin financing has already fallen, as has northbound turnover through the Stock Connect with Hong Kong, suggesting neither leveraged traders nor foreign hot money is behind the latest weakness.”
- SupportedRegulators told several major insurers to report equity holdings, refrain from cutting losses and align investment decisions with broader economic goals.The Age - Latest News: “In recent days, authorities have issued window guidance to several major insurers, requiring them to report their equity holdings, refrain from cutting their losses, and align investment decisions with broader economic goals.”
- SupportedChina Pacific Insurance Group said on its latest earnings call that equity investing had become “complicated”.The Age - Latest News: “On its latest earnings call, executives at China Pacific Insurance Group Co acknowledged that equity investing had become “complicated””
- SupportedProfits at China’s five major listed insurers plunged in the third quarter, largely because of declines in domestic stocks.The Age - Latest News: “In the third quarter, profits at China’s five major listed insurers plunged, largely because of the decline in domestic stocks.”
- SupportedOver the past decade, China’s domestic market had at least three bear runs prompting emergency government bailouts: in 2018, 2024 and now.The Age - Latest News: “Over the past decade, the domestic market has endured at least three bear runs that prompted emergency government bailouts – in 2018, 2024 and now.”
