Insurance stocks hammered as China tries to slow capital outflows through Hong Kong insurance purchases

AIA Group, the most heavily traded stock in the market, closes 4.8 per cent lower

PUBLISHED : Monday, 31 October, 2016, 1:32pm
UPDATED : Monday, 31 October, 2016, 11:22pm

Insurance stocks took a blow on Monday in both Hong Kong and Shanghai markets, as investors backed off from the sector after Chinese authorities announced a curb on Hong Kong insurance purchases through UnionPay cards and launched a probe into illegal sales of overseas insurance policies on the mainland, as part of its latest efforts to slow capital outflows.

Selling was heavy in the sector. In Hong Kong, pan-Asian life insurer AIA Group sank as much as 7.2 per cent in the morning. By close, it fell 4.8 per cent to HK$48.95, making it the biggest loser among blue-chips. It was also the most heavily traded stock in the market, with a daily turnover of HK$4.67 billion.

British insurance company Prudential PLC also declined 2.8 per cent to close at HK$128.3. Toronto-based Manulife Financial dropped 0.6 per cent to HK$112.1. Their Chinese rival New China Life Insurance lost 0.6 per cent to HK$33.6.

In Shanghai, New China Life Insurance’s A shares briefly fell 1.7 per cent, before closing down 0.2 per cent at 42.27 yuan. China Pacific Insurance also settled lower by 0.3 per cent at 29.3 yuan. China Life Insurance’s A shares lost 1.3 per cent in the morning, but reversed its course in the final 30 minutes of trading and edged up 0.2 per cent to finish at 21.83 yuan.

The declines came after state media reported Monday that China’s insurance industry regulator recently launched a probe into illegal sales of Hong Kong insurance products on the mainland. It followed a Saturday announcement by China’s state-backed UnionPay, the largest bank card provider in the country, that it had banned customers from using its services to buy investment-related insurance products in Hong Kong with immediate effect.

UnionPay bans mainlanders from using card to buy insurance investment products in Hong Kong

These moves were considered the latest effort by Chinese authorities to try to stem capital outflows as the yuan continues to weaken.

“The restrictions may have a negative impact on Hong Kong’s insurance sector in the near term,” said Bernard Chan, the president of Hong Kong-based Asia Financial Holdings and Asia Insurance.

“Insurance purchases by mainlanders have surged in recent years, not purely because they want the Hong Kong’s insurance products, but it’s more about diversifying currency risks and moving money abroad,” he added.

However, he said the regulatory changes have “made it less convenient” for mainlanders to buy Hong Kong insurance policies.

The restrictions may have a negative impact on Hong Kong’s insurance sector in the near term
Bernard Chan, Asia Financial Holdings and Asia Insurance

Nomura on Monday cut its rating for AIA’s stock from Buy to Neutral, while lowering its price target for the stock by 12 per cent to HK$54.46 from HK$62.19. Analysts from the Japanese investment bank said the UnionPay’s recent restrictions may have “a negative impact” on AIA’s new business value, a measure of insurance companies’ projected profitability.

AIA Group recently reported its highest quarterly growth in new business value for the third quarter, partly driven by robust mainland visitor sales in Hong Kong.

Mainland investors have been pouring into Hong Kong to buy insurance products to hedge against the declining yuan and skirt strict capital controls to move money offshore. Purchases of insurance products by mainland visitors in Hong Kong hit HK$30.1 billion in the first half of the year, up 116 per cent compared with the same period last year, according to recent statistics from the city’s insurance industry regulator.

How wealthy Chinese move hundreds of billions abroad to buy assets

The figure was almost equal to 2015’s total annual amount of HK$31.6 billion.

In a written response to a Post question on how AIA may be affected by the restrictions, a spokesperson said the company “complies with all guidelines in the processing of applications of life insurance by PRC visitors in Hong Kong”.

However, some analysts doubt the measures will be of much use in curbing the amount of cash flowing out of the mainland in the longer term.

“In the short term, the Chinese authorities have made it more difficult for Hong Kong insurance companies to sell products to mainland investors on UnionPay POS [point of sale] terminals,” said Ronald Wan, chief executive at Hong Kong-based Partners Capital International.

“But people can often find another way if they really want to move money out,” he added. “So it remains to be seen how effective these restrictions are.”