China Life forecast to surge on debut
But the insurer's shares are not expected to follow suit in HK
Shares in China Life Insurance are expected to gain more than 60 per cent on their debut in the mainland A-share market today, making them more expensive than their Hong Kong-listed counterparts.
Analysts generally expect the stock to rise to more than 30 yuan, compared with the offer price of 18.88 yuan. China Life's H shares closed at HK$26.85 yesterday.
China Life's A shares would be driven by the abundant liquidity in the mainland market, as well as the lack of insurance stocks, analysts said. China Life will be the first life insurer listed in the yuan-denominated A-share market.
'Mainland analysts are bullish on [China Life's] debut,' said Ricky Tam, an investment director at Champlus Asset Management.
'Some have been are so aggressive that they set a 12-month target price of 30 yuan and 36-month target of 90 yuan.'
Mr Tam said China Life's A shares were set to surge as mainland investors had money but limited investment channels. He expected it would be a highly speculative stock as the first life insurer on the mainland exchange and its valuation could be highly erratic.
The country's biggest life insurer offered 1.5 billion new A shares, 5.3 per cent of its enlarged share capital, to raise about 28.3 billion yuan in a Shanghai initial public offering.
China Life's H shares yesterday lost as much as 4.41 per cent in the morning session, following the decline of key mainland banks which were hit by the increase of capital reserve ratio ordered by the People's Bank of China late on Friday.
The stock recovered to end up 2.87 per cent at HK$26.85, as bargain hunters bet the debut of its A shares would lift the Hong Kong equivalent.
However, Sun Hung Kai Financial strategist Castor Pang said there was no guarantee that the H shares would track the A shares because previous examples such as Bank of China showed that H shares and A shares did not rise simultaneously.
'The mainland and Hong Kong are two individual markets,' Mr Pang said. 'Hong Kong has more mature institutional investors who look for value instead of speculative investments. They sell stocks that are overvalued.'
The reasonable price of China Life's H shares should be HK$17, representing a downside risk of more than 30 per cent from the current price, according to a research report from JP Morgan.
Mr Tam said H shares tended to trade at a discount to A shares and China Life would not be an exception.