China Pacific Insurance (CPIC) is pushing ahead with investment into offshore bonds and equities as its plans to diversify overseas are undeterred by the current challenging environment.
The insurer's new offshore investment unit, Hong Kong-based CPIC Investment Management, has three portfolios, for fixed income, equity and alternatives.
The fixed income one invests mainly in US debt issued by Chinese corporates and quality bonds in Southeast Asia, 'CG' Zhou Chenggang, chief executive of the asset manager, told AsianInvestor in an exclusive interview.
"US bonds listed by Chinese corporates can have coupons that are higher than those sold onshore ... usually by several percentage points," he said.
Given that the low-interest-rate environment is likely to remain for the next few years, US investment-grade bonds are relatively less appealing. Yields will be low and the bond prices have risen recently. But while there are opportunities in the US high-yield bond market, a lot of credit analysis has to be done to select the right sectors and corporates, he said.
For emerging markets, Southeast Asian countries like India and Indonesia are CPIC IM’s favourites, especially as its head of fixed income, Alice Mao, has rich experience in the region. Before her previous role at CSOP Asset Management, she was a fixed income portfolio manager at the Singapore office of the Investment Company of the People’s Republic of China, a subsidiary of China’s central bank.
The investment arm is also interested in Latin America and Middle Eastern markets but won't invest in them until the market is more stable and someone more experienced in the markets joins the team. It is a long-term plan, Zhou said.
For equity investment, CPIC IM mainly looks to US and Hong Kong stocks. The rebound in US equities is a result of monetary easing policies and runs contrary to economic data and fundamentals, he believes.
That said, Zhou is not that pessimistic about the stock market, as central banks all over the world are releasing liquidity by lowering interest rates. Fiscal policies are also easing so risky assets have strong support.
"For a long-term investor like us, every significant drop in the market is a good opportunity to enter the market," he said.
Alternative credit, mostly in the US, is of interest to CPIC IM too. These include securitised debt and structured financing products, he added, without elaborating further.
The third-largest insurer in China has been staffing its only offshore investment unit since July last year. The insurance units within the group are gradually shifting capital into the hands of CPIC IM for it to allocate overseas. By the end of the year, it expects to have several billion Hong Kong dollars under management.
Market uncertainty is likely to be significant, but this offers investment opportunities for a newcomer like CPIC IM. Unlike other fund managers, it has not seen its assets under management shrink, rather it is buying into a market with low valuations.
What's more, the CPIC group wants to increase its relatively low overseas allocation by diversifying into overseas markets, so that market swings don't impact its strategy.
By 2025, CPIC IM should be managing between HK$15 billion ($1.93 billion) and HK$20 billion for the group, said Zhou. That will still constitute a small percentage of CPIC’s assets under management, which stood at Rmb1.42 trillion ($201.2 billion) at the end of last year and does not include money that the group manages for other institutions.
CPIC is also eyeing a secondary listing in London by the end of the year. Zhou expects the group to raise $2 billion to $2.5 billion in global depository receipts with most of the funds raised to be managed by CPIC IM.