China Life Insurance, the country's largest life insurer, plans to step up equity investments to support earnings growth, saying shares listed in the mainland market are not pricey.
The company expected the favourable investment environment to continue this year, chief investment officer Liu Lefei said a day after China Life reported that profit surged 114.44 per cent last year to 19.96 billion yuan on a 49.49 per cent jump in net investment income to 24.94 billion yuan.
'Most of the mainland-listed firms are trading at about 30 times this year's earnings, compared with a fair value of 40 times price-earnings based on their 40 per cent earnings growth last year,' Mr Liu said. 'It's not especially expensive.'
China Life, a major institutional investor in the mainland stock market, increased its equity investment, including publicly traded stocks, mutual funds and private shares to 13.9 per cent of its entire portfolio last year from 8 per cent in 2005.
The ratio could increase to as much as 20 per cent, Mr Liu said without giving a timetable.
The benchmark CSI 300 Index, which tracks yuan-denominated A shares listed on the Shanghai and Shenzhen exchanges, added 20.9 points or 0.6 per cent to close at a record 3,304.5 yesterday.
The index gained 120 per cent last year.
'We remain optimistic about our future equity investments and stock market prospects,' Mr Liu said.
By the end of last year, China Life's total investment assets had increased 38.9 per cent to 686.8 billion yuan. Net investment income yielded 4.27 per cent, against 3.86 per cent in 2005.
China Life booked 21.6 billion yuan of investment gain, against a 250 million yuan loss in 2005, after the company bought more bonds and equities and cut bank deposits.
Last year, the insurer spent 3.25 billion yuan to buy shares in Citic Securities, the mainland's largest publicly traded brokerage, and became its second-largest shareholder.
It also bought a 20 per cent stake in Guangdong Development Bank for 5.67 billion yuan as well as shares in Bank of China and Industrial and Commercial Bank of China, when they listed.
China Life, which has 45 per cent market share in the mainland life insurance market, would also invest in the 20 billion yuan Bohai Industry Investment Fund, the mainland's first large-scale private equity fund owned by domestic investors, said chairman Yang Chao.
'We expect China Life to further optimise its asset mix by further lowering its investments in cash and term deposits in the first half this year,' Citigroup said.
Shares of China Life closed unchanged at HK$25.15 yesterday despite posting better than expected earnings for last year on Tuesday.