Guosheng Securities released a research report stating that policies are actively promoting mid-to-long-term capital inflows into the market, with insurance funds expected to continue increasing their investments. In Q3 2025, insurance funds held RMB 8.52 billion in the construction sector, accounting for 1.31% of their total holdings. Projections indicate that insurance allocations to the construction sector could reach RMB 50.8 billion in 2025 and RMB 79.4 billion in 2026, with a RMB 28.6 billion year-on-year increase in 2026, representing 3.53% of the free-float market capitalization. Given the sector's attractive dividend yields, further increases in insurance fund allocations are likely. Key insights from Guosheng Securities include:

1. **Policy-Driven Capital Inflows**: Regulatory efforts aim to boost mid-to-long-term capital participation in the market. Earlier this year, six government bodies jointly issued guidelines targeting a 10% annual growth in A-share holdings by mutual funds over the next three years and requiring large state-owned insurers to allocate at least 30% of new premiums to A-shares annually from 2025 onward (translating to hundreds of billions in incremental capital). Recent adjustments to risk factors for long-term holdings of select indices (e.g., CSI 300, CSI Dividend Low Volatility 100, and STAR Market stocks) further incentivize insurance funds to increase equity exposure while reducing capital consumption.

2. **Insurance Fund Trends**: From January to October 2025, China's premium income grew 8.0% YoY to RMB 5.48 trillion, continuing an upward trajectory since 2022. By Q3 2025, insurance asset utilization reached RMB 37.5 trillion (+16.5% YoY), with 15.5% allocated to stocks and funds (RMB 3.6 trillion and RMB 2.0 trillion, respectively), up 2.2 percentage points YoY. Guosheng estimates that China’s top five state-owned insurers could inject over RMB 900 billion into secondary markets from 2025 to 2027 under current policy assumptions.

3. **Construction Sector Appeal**: Insurance funds favor high-ROE, high-dividend, and low-valuation stocks within the construction sector. In Q3 2025, their top holdings included Power Construction Corporation of China (RMB 2.90 billion), China State Construction Engineering (RMB 2.15 billion), and Sichuan Road & Bridge (RMB 1.37 billion), which collectively represented 75% of their construction sector exposure. These companies exhibit robust ROE (8.7% median), dividend yields (2.4% median), and attractive valuations (PE 9.2x, PB 2.05x).

4. **2026 Allocation Outlook**: Assuming a 16.5% annual growth in insurance asset utilization and increased equity allocations (10.0% in 2025, 11.0% in 2026), construction sector allocations could rise to 1.60% by 2026. This would translate to an incremental RMB 28.6 billion inflow, significantly impacting free-float market capitalization.

5. **Investment Recommendations**: High-dividend construction stocks expected to yield over 5% in 2026 include Sichuan Road & Bridge (6.7%), Jianghe Group (6.5%), and Anhui Construction Engineering Group (5.6%) among A-shares, as well as China Communications Construction (6.0%) and China State Construction International (6.9%) in H-shares. These are poised for potential insurance fund inflows.

**Risks**: Potential shortfalls in policy implementation, declining premium income, reduced insurance allocations to construction, and model inaccuracies.