Ping An plans to rebalance portfolio in favour of bonds
Insurer to lighten equity load in light of bearish market
In view of the bearish global stock markets, Ping An Insurance will increase the weighting of bonds in its investment portfolio this year and rely less on equities, which helped it post huge earnings last year.
Equity investments by the country's second-largest insurer rose 161 per cent last year from 2006, making up 24.7 per cent of its total investment portfolio. Investments in government bonds and other debt securities accounted for the remainder.
'We don't want to rely too much on capital gains [from equities],' said Ping An president Louis Cheung Chi-yan. 'This year, we shall increase our bond investment as well as focus on high-dividend stocks.'
John Pearce, chief investment officer, said the company was comfortable with its current equity investments and did not need to reduce exposure to that segment.
'The proportion [of the company's equity investment] is not that high compared with insurers around the world,' he said, adding that the mainland stock market's valuation of about 20 to 30 times was 'reasonable'.
As the Shanghai Composite Index has fallen 28 per cent since November, industry watchers widely anticipate lower investment returns for domestic insurers, including Ping An, which derived about 38 per cent of revenue from equity gains last year.
Ping An is sitting on 2.5 billion yuan (HK$2.76 billion) of unrealised mark-to-market gains, stemming from its investments in the early stage of a bull market dating back to 2005. This will provide some buffer for the waning A-share market.
Ping An disclosed during an analysts' briefing yesterday that it had about 15 per cent of its equities in the A-share market at the end of last year. Up until now, it has not reduced significantly it's A-share equity position.
'Obviously Ping An thinks the current prices of A shares are still reasonable,' said Ben Lin, an analyst from Nomura Securities.
Ping An's brokerage subsidiary reported a net profit of 1.49 billion yuan, up 145 per cent year on year. In the same reporting period, Ping An Bank made a profit of 1.54 billion yuan, up 206 per cent on strong loan growth and a widening net interest margin. The two businesses accounted for 7.8 per cent and 8 per cent of the group's profit, respectively.
Ping An aims to build insurance, banking and asset management into three equally important lines of business to contribute one-third each to its bottom line in five to 10 years.
The company announced on Wednesday that it had signed an agreement with the Dutch-Belgium financial group Fortis, its overseas strategic partner, to purchase a 50 per cent stake in Fortis Investments for HK$26.34 billion. The transaction was expected to be completed this year, Mr Cheung said.
'It is complementary to Ping An's 'three pillar strategy', and Fortis should prove to be a successful partner,' said Nomura's Mr Lin.
On the banking front, the company would expand domestically and only contemplate overseas acquisitions that might help its mainland banking business, said Richard Jackson, Ping An Bank's president.
In 2005, the insurer lost to a consortium led by Citicorp a bid to buy a stake in Guangdong Development Bank.