Source: Brokerage China Author: Qu Hongyan Recently, China Yangtze Power hit a historical high and once again showed the slow bull stock trend of "tripling in ten years". The slow bull market has left behind many passers-by and brought good returns to the steadfast investors. It is "rare for those who triple in one year to be like carp jumping over the dragon gate, while those who double in three years are few and far between." On the other end of the investment world, however, violent collapses are also deafening, with many financial products suspected of "Ponzi schemes" ceasing payments, leaving investors with no hope of recovering their investments. Both positive and negative cases illustrate the importance of forming a suitable mentality towards money in one's lifetime; otherwise, sooner or later, you will divorce yourself from your money. "I call this the money mind, a person's IQ can reach 120, 140, or even higher levels, and perhaps some people's minds are good at doing one thing, while others are good at doing another. They can do things that most ordinary people can't do. But I know some very smart people who make very foolish decisions because they lack the money mind." Buffett once said so. The so-called money mind refers to believing in common sense, believing in compound interest, being cautious and rational, thinking independently, prioritizing security over return, not dealing with people with questionable character, not easily guaranteeing for others, not believing in windfall profits, and not trying to cross legal norms for extra benefits. In today's world of ubiquitous information, everyone's wealth may become the "prey" of those with ulterior motives. Only with the money mind, can one form good behavior habits and shield oneself from separating from one's wealth. Do not entrust your wealth easily. Wealth is easy to lose but hard to accumulate, and trust is a vital reason leading to the rapid loss of wealth. "Do not allow anyone else to manage your business unless you can watch their every move closely and understand their behavior; or you have strong reasons to believe in their character and ability. For investors, this criterion determines when you can let someone else make investment decisions for you." Graham's criterion written eighty years ago is so clear. Almost all the investors who lost their wealth in the financial products have violated the above two criteria. They did not have the ability to closely supervise the whereabouts of their funds, nor did they have sufficient reasons to believe in the character of the product issuers. They easily invested their own wealth solely based on others' glib tongue and a piece of commitment paper. They did not act as gatekeepers of their own wealth and ended up with nothing left even if the government punished the wrongdoers. "An ounce of prevention is worth a pound of cure." This is a phrase Munger often says. Destiny must be in one's own hands, and investors with a suitable money mind will try their best to find suspicious points in their investments to protect the safety of their principal. For example, whether the manager is trustworthy, whether the underlying assets are profitable, whether oneself can timely monitor the risks in the investment process, and whether the sales staff is obtaining large commissions. As long as any unreliable signs are found, these investors firmly will not invest their money. Do not desire to get rich quick. As in the capital market and anywhere else, making money is not easy, and desiring to get rich quick will lead to quick loss of wealth. In the capital market, the desire to get rich quickly often leads to investors over-allocating specific stocks, industries, or assets at the worst time. For example, buying high-risk stocks that can gain huge returns once an adventure succeeds, but the chance of success is very small, also known as "whispering stocks" by legendary fund manager Peter Lynch. "They often tell investors a story with explosive effects. These 'whispering stocks' have a hypnotic effect on people, and it is easy for you to believe that the story the company tells has an emotional appeal that can easily confuse you." This is like hearing a very tempting "sizzling" sound, making you salivate, but you did not notice that there is no steak on the grill. In the eyes of investors who lack the money mind, stable yield provided by blue chips such as China Yangtze Power cannot meet their demands. However, historical experience clearly shows that buying stocks lacking in safety solely based on imagined high yields is unwise. The long-term average investment return of general stocks is 9%-10%, which is also the average investment return of stock indexes in history, a benchmark to measure one's investment performance and the benchmark to measure fund investment performance.

Authors: Xiong Ying, Jing Yuan, Zhuo Qing

Among them, the content regarding insurance institutions establishing private equity investment funds, increasing market investment efforts, supporting stock market stability with convenient policy tools, and optimizing assessment mechanisms has sparked industry discussions. Insurance China reporters interviewed insurance professionals promptly.

On the day, influenced by a series of bullish factors, insurance stocks rose across the board, and Hong Kong-listed A-share insurance stocks all gained.

Some insurance funds are researching private equity funds.

At the meeting, Li Yunze, Director of the Financial Regulatory Administration, stated that the Financial Regulatory Administration has always placed high importance on the capital markets, actively guiding banks, insurance companies, and asset management institutions to maintain stability in the capital markets.

"Next, we will continue to support the stable development of the capital markets," Li Yunze said. Firstly, expand the reform pilot of insurance funds for long-term investments, support other qualified insurance institutions to establish private equity investment funds, further increase investment in the capital markets. Secondly, urge and guide insurance companies to optimize assessment mechanisms, encourage and guide insurance funds to engage in long-term equity investments. Thirdly, encourage wealth management companies and trust companies to strengthen equity investment capabilities, issue more long-term equity products, actively participate in the capital markets, and cultivate and strengthen patient capital through multiple channels.

It is introduced that, in the early stage, with the approval of the State Council, the China Banking and Insurance Regulatory Commission is promoting.$CHINA LIFE (02628.HK)$,$NCI (01336.HK)$Conducting trials, jointly establishing private equity securities investment funds, and raising insurance funds to invest in the capital markets. The fund has a registered capital of 50 billion yuan, has officially started investment operations, and is currently progressing smoothly.

Regarding the establishment of private equity securities funds to invest in the capital markets, many institutions including large insurance asset managers and medium-sized insurance groups have expressed the possibility. A head of investment department from a medium-sized insurance institution stated that they are studying the private equity fund approach, which involves complex and multi-dimensional considerations. They studied the private equity fund approach last year and now need to learn more information such as supporting policies.

The private equity securities funds established by China Life Insurance and New China Life Insurance have the unique characteristic of being company-operated. In the industry's view, this approach has certain advantages over direct stock investment. GTJA's non-bank team analyzed previously, $CHINA LIFE (02628.HK)$ and $NCI (01336.HK)$ Establishing a company-funded fund for secondary equity markets with each contributing 50%, can be measured using the long-term equity investment method in accounting to avoid the impact of market value fluctuations on current profits. By using the equity method of accounting, the profits and dividends of private securities funds companies are proportionally included in investment income, effectively mitigating the impact of direct investment in secondary equity markets on financial statements under the new accounting standards.

For companies with a high proportion of third-party assets, the focus is on whether the investment scope has been expanded. An analyst from a medium-sized insurance asset management company analyzed that establishing a private securities investment fund will definitely bring incremental value to the equity market. However, for insurance asset management companies that can directly invest in the equity market currently, the focus is more on whether establishing a securities investment fund will lead to an expansion in investment scope or other supporting measures. This aspect needs further review of specific details.

Implementing long-term performance evaluations is attracting attention.

For a long time, the long-term liability characteristics of life insurance funds and the evaluation based on short-term investment returns have become important factors constraining the "long money, long-term investment" of insurance funds.

Chairman of the China Securities Regulatory Commission, Wu Qing, stated at the meeting that the current issues in the capital market including insufficient long-term capital, suboptimal structure, and inadequate leadership role still remain prominent. The institutional environment for "long money, long-term investment" has not been fully established yet. Recently, with strong support from relevant ministries and commissions, the China Securities Regulatory Commission and other relevant departments have formulated the "Guiding Opinions on Promoting the Entry of Medium and Long-Term Capital into the Market", which will be issued soon, focusing on three main measures.

Including improving the institutional environment for "long money, long-term investment", with a focus on enhancing regulatory inclusiveness for equity investments by medium and long-term funds, fully implementing evaluations lasting over 3 years. Removing the institutional barriers affecting long-term investment of insurance funds, promoting insurance institutions to be firm value investors, and providing stable long-term investments for the capital market.

There is wide attention from insurance investment officials on how to improve the regulatory inclusiveness of long-term equity investments and how to fully implement assessments lasting more than three years.

The head of an insurance asset management company believes that looking at the trend of insurance stocks today, the series of measures will bring significant bullish implications for the insurance industry. The future layout still needs to focus on subsequent specific guidance documents, especially the specific connotations and measures of 'improving the regulatory inclusiveness of long-term equity investments.'

Some insurance investors express doubts about the difficulties of implementing assessments lasting more than three years. 'If the three-year assessment period is to be implemented, it can indeed significantly increase the insurance industry's tolerance for volatility. However, currently, at the level of most asset management companies, it's an absolute return assessment. Specific assessment plans need to be provided by life insurers since they are the ones delegating the authority,' said a mid-level official from a medium-sized insurance asset management company.

'From an investment perspective, we definitely welcome long-term assessments. They do exist in the weightings, they're just not high,' said a person from an insurance asset management company. The individual also believes that to truly promote the implementation of long-term assessments, besides loosening the investment side in terms of institutional assessments, efforts need to be made on the liability side to change the current industry situation that overly relies on interest rate differentials. 'Insurance companies need to calculate profits every year. If the cost of funds from the liability side demands 4% and it all comes from interest differentials, this short-term pressure will definitely transmit to the asset side.'

'China Life Insurance' personnel previously told reporters that in optimizing and improving the performance assessments of insurance companies, it is suggested to promote the improvement of a long-term assessment mechanism, explore linking with long-term interest rates, rolling long-term assessments, while avoiding assessment methods that lead to competitive comparisons among peers, preventing strategic convergence of institutional investment behaviors, and amplifying market fluctuations.

Zhou Jin, Managing Partner of PwC China's Financial Services Management Consulting, expressed that in optimizing measures for capital markets, increasing the proportion of direct financing, fully leveraging the advantages of insurance funds as 'patient capital', playing the role of 'stabilizer', guiding and encouraging long-term investment through reforming assessment criteria, reducing short-term speculative behavior, stabilizing capital markets, and better supporting industries and companies with national strategic significance and policy orientation.

'The achievement of the goal of increasing equity investment by insurance funds and long-term support for the development of capital markets is not fundamentally hindered under the current regulatory system. However, the existing assessment model and solvency standards do not provide enough incentive for insurance companies. Therefore, regulatory authorities need to reform and introduce supporting incentive measures to encourage and guide insurance funds to better leverage the advantages of 'patient capital,'' Zhou Jin said.

Convenience in swaps may have cost advantages.

Central Bank Governor Pan Gongsheng stated that the establishment of new monetary policy tools supports the stable development of the stock market. One of them is to establish convenient exchanges between securities, funds, and insurance companies, supporting eligible institutions to obtain liquidity from the central bank through asset pledges. This policy will significantly enhance institutions' funding and stock holding capabilities.

An insurance investment officer in southern China believes, "The establishment of insurance company exchanges to support eligible insurance companies in obtaining liquidity from the central bank through asset pledges is ultimately a cost-benefit issue. If there is cheaper liquidity, they will definitely be willing to trade with the central bank."

However, several insurance company investment officers also expressed that the effect of using exchange convenience tools for increasing stock holdings by insurance funds is expected to be limited in the short term. Currently, insurance companies do not lack investment funds, but lack suitable assets. Insurance companies generally do not fully allocate to equity assets, and their investments in the equity market are influenced by many factors.

The above-mentioned insurance investment officer in southern China told brokerage China reporters that today's series of positive policies announced by the top leaders at all levels have indeed brought positive momentum to the capital markets. "After breaking down each policy, they basically meet expectations, but the combined impact slightly exceeded expectations."

The insurance investment officer stated that for boosting the economy, lowering the existing housing loan interest rates is a popular move. To boost the stock market, providing repurchase loans to major shareholders to boost confidence is the greatest highlight of this new policy package, and there are no technical barriers in its implementation. "Next, if the LPR is further reduced, it will be even better."

Editor/Rocky