China’s insurers see hotels, office buildings as safe bets as they diversify into offshore assets

Fixed assets, especially hotels and office buildings, are currently the best choice of outbound investment for mainland Chinese insurers, with asset diversification seen as a long-term trend amid the “irreversible ” growth of overseas investment, says an insurance industry official.

“Insurers are financial investors seeking stable and long-term returns. Acquiring hotels or office buildings is a very straightforward and convenient way to realise 4 to 5 per cent annual return,” said

Chen Guoli, deputy secretary general of the Beijing-based Insurance Asset Management Association of China.

“The business model is easy to comprehend for those who don’t participate in the daily operations of the acquired assets. It’s just collecting rent,” Chen told the South China Morning Post on the sidelines of the FT Asia Insurance Summit in Hong Kong.

He said infrastructure acquisitions in foreign markets involve negotiations with local governments, which are complicated for mainland insurers who are still at the initial stage of foreign asset allocation. China’s insurers still lack risk management ability, investment talent, and the skill in evaluating foreign equity assets in open markets, Chen said.

Jerry Li Wenbing, China Merchants Securities Hong Kong analyst, said, “The investment risk of fixed assets is comparatively low and the return is not bad when you assume 1 to 2 per cent further depreciation of the Chinese currency.”

While there are corporate bonds offering 3 per cent yield in overseas markets, the risk is higher, Li said, adding that fixed assets are still the best choice for insurers amid the global low-interest-rate environment.