China insurers tipped to buy big into HK stocks after CIRC move

AIA's China CIO expects mainland insurers to pour up to Rmb200 billion into Hong Kong equities, after the regulator said it would not view Stock Connect investments as foreign allocations.
China insurers tipped to buy big into HK stocks after CIRC move

Chinese insurers have been told that their investments into Hong Kong stocks via the Stock Connect scheme will not be considered part of their foreign allocation, said Larry Wan, chief investment officer of AIA China.

This is an important easing of the rules that could spark flows of up to Rmb200 billion ($30 billion) into Hong Kong equities, he told AsianInvestor’s China Global Investment Forum in Beijing yesterday. 

The China Insurance Regulatory Commission told industry players at a private meeting last week that investments made via the Connect would not fall within their overseas allocation, noted Wan during a panel discussion, though the rule could change in future. Foreign investments are capped at 15% of total AUM. 

The move came soon after the move two weeks ago to allow Chinese insurance firms to participate in the Shanghai and Shenzhen Stock Connects.

Other speakers at the forum agreed that allowing insurers to buy Hong Kong stocks via the trading links was important, and reflected Beijing's keenness to boost usage of the schemes.

However, in an audience poll conducted during the panel, only 31% said the Connects were “very helpful” in offering greater flexibility for overseas investing, while 61% said they were “a little helpful”.

Yet Wan said investors should not understimate the importance of policy changes around the trading links.

He expects many Chinese insurers to build exposure to Hong Kong stocks via the Connect schemes very soon. Wan suggested that they would put Rmb100 billion to Rmb200 billion into Hong Kong equities, which he said was still a small amount relative to the industry's assets. 

He added that he would not be surprised if small-to-medium-sized mainland insurers allocated 30% to 40% of their equity portfolios to Hong Kong shares via the Connect schemes in the coming two to three years.

Chinese insurance firms have a total AUM of Rmb14 trillion, of which Rmb1.7 trillion is in equities or securities funds. They are estimated to have invested only 2%, or Rmb280 billion, of their total AUM offshore.

Wan pointed out that Hong Kong stocks had been the best performers this year in the portfolio he oversees, returning about 10%. The Hang Seng Index has climbed 8.4%, while the US dollar has gained 2.8% against the renminbi this year, as of yesterday.

AIA buys Hong Kong equities via its $186 million quota under the qualified domestic institutional investor scheme, representing less than 1% of its Chinese assets.

The CIRC did not respond to requests for comment by press time.

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