Governments in Asia have begun turning to state-controlled pension and other investment funds in an effort to help to stem falls in domestic equity markets.

Asian authorities have taken their cue from the US Federal Reserve’s decision to make the biggest single rate cut in more than two decades.

Their focus on promoting buying by state-controlled funds echoes measures taken during the 1997-98 Asian financial crisis and in Japan during the early 1990s market tumble, when pension funds and other government institutions were pressed into buying shares to support markets.

Industry executives said on Wednesday that China’s securities regulator had allowed the launch of at least three new equity funds, marking the first such approvals in five months.

In Taiwan, the government has instructed its four largest funds to buy an unspecified amount of local shares to support the market.

In South Korea, the government on Wednesday asked national pension funds to bring forward plans to increase their investments in local equities to shore up investor confidence after the benchmark Kospi index plunged to an eight-month low on Tuesday.

The Korean finance ministry is scheduled to have an emergency meeting on Thursday with officials from the national pension service and other pension funds to discuss ways to stabilise the stock market.

Kim Moon-soo, an NPS spokesman, said the pension fund could raise its domestic stock purchase by up to Won13,000bn ($13.6bn, €9.4bn, £7bn) this year on top of the planned Won9,000bn, depending on market conditions.

Chinese authorities have been using approvals of investment funds to try to influence the amount of new money flowing into the stock market. They had been withholding approvals since September, when the Chinese stock market was showing signs of overheating.

The China Securities Regulatory Commission did not confirm the decision to allow three new funds to go ahead on Wednesday, but speculation about the product launches helped to boost mainland share prices by 3.1 per cent.

The Shanghai composite index had fallen 7.2 per cent on Tuesday and 5.1 per cent on Monday. Most other Asian stock markets also rebounded on Wednesday.

Although Monday and Tuesday yielded the Japanese stock market's worst two-day session in 17 years, analysts said the government would not follow others in mandating state-controlled funds to buy equity.

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