23 November 2011
Developing insurance and pension sectors will be key for
enhancing China and India's capital markets
The insurance and pensions sectors in China and India offer huge
potential for rapid growth, according to a new report published by
the City of London Corporation.
‘Insurance companies and pension funds as institutional
investors: global investment patterns’, authored by Trusted
Sources, a leading emerging markets research specialist, examines
the role that pension funds and insurance companies have played in
increasing liquidity in established capital markets, by introducing
long-term and stable funds. It goes on to suggest that
liberalisation of investment mandates for insurers and pension
funds could prove similarly beneficial in the high-growth Chinese
and Indian markets, increasing both depth and liquidity in their
capital markets.
The report can be downloaded from
www.cityoflondon.gov.uk/researchpublications.
In China, the role of both insurance companies and pension funds
in the stock market is very small – each holds only around 2% of
issued shares. Recommendations flagged up by the report
include: increased competition amongst insurance companies; tax
incentives for Unit Linked Insurance Products; introducing
effective dividend pay-out rules for listed companies; encouraging
the development of expertise of fund managers in insurance
companies and the relaxation of qualification rules for private
companies allowed to issue bonds.
In India, the pension and insurance sectors are still relatively
underdeveloped, with assets at 7% and 16% of GDP
respectively. The report identifies measures which could
facilitate rapid development of these markets including: lifting
restrictions on equity investments; allowing investments in
lower-rated corporate debt and derivatives; allowing the Employees’
Provident Fund Organisation to invest in equities; removing tax and
regulatory constraints and increasing incentives to buy corporate
bonds.
Stuart Fraser, Policy Chairman at the City of London
Corporation, said: “The City of London’s position as a global
financial centre makes it a natural partner for growing economies
such as China and India. The experience of London shows the
valuable role that robust capital markets can play in supporting a
sophisticated and liquid market which is attractive to both
international investors and companies wishing to raise money.
“Capital markets play a vital role in raising debt and equity
capital for businesses, offering alternatives to bank financing and
channelling funds from savers into the financial sector. This
report finds that greater depth and liquidity in domestic capital
markets is needed in both China and India to support the effective
growth of their companies.
“Indeed, liberalisation of the insurance and pensions markets
will result in a greater provision of capital to both countries’
businesses for their domestic and international expansion.”
Ends
Notes to editors
- Press enquiries
John Park, Press Officer, City of London Corporation
Tel 020 7332 3639 / Mobile 07824 343 456
Email
john.park@cityoflondon.gov.uk
- About the City of London Corporation
The City of London Corporation is a uniquely diverse organisation.
It supports and promotes the City as the world leader in
international finance and business services and provides local
services and policing for those working in, living in and visiting
the Square Mile.
- How the City of London engages with China and
India
The City of London has long recognised the critical importance of
China and India to the UK-based financial services industry, and it
is committed to making the best possible use of existing cultural,
linguistic, political and trade relationships. The rapid growth of
the Chinese and Indian economies brings a demand for international
financial services - both to provide capital, risk management and
expertise for companies as they expand - and to meet the needs of
their growing middle classes, in areas such as savings products,
pensions, insurance and wealth management. An important part of the
City of London’s work is to help UK-based firms to access the
Chinese and Indian markets, and to promote a genuinely two-way
exchange of trade and investment in financial and professional
services. The City of London’s engagement with China and India is
guided by the City of London Advisory Councils for both China and
India and delivered by City Offices in Beijing, Mumbai and
Shanghai. The City of London Advisory Councils are comprised of
senior Chinese and Indian financial sector leaders and provide a
formal structure for engagement with Chinese and Indian financial
services firms at a senior level, and expert guidance and advice on
their domestic markets.
- About trusted sources
Trusted Sources is an independent research firm that specialises in
the analysis of the political economies of Brazil, Russia, India
and China, Indonesia, Turkey as well as other emerging
markets. The ultimate goal of our analysis is to provide sound and
timely expert judgement on developments and issues that are
impacting not only the emerging markets but also the global
economy. Tapping into an extensive network of experts with
first-hand experience in areas such as business, finance, industry
and government, our team of in-country analysts spot evolving
trends early and pinpoint themes and topics somewhat removed from
the mainstream, providing clients with a unique understanding of
the opportunities and risks in emerging markets.
www.trustedsources.co.uk