China’s Ping An Insurance continued to build up its foreign asset portfolio in the second half of last year largely by adding Hong Kong stock exposure, but it also increased its cash position.

Over the course of 2016 the firm also saw its allocations rise to preferred shares, infrastructure, private equity, property and equity wealth management products, while its overall exposure to bonds, equity funds and debt plan investments shrank.

This came as Ping An posted a gross return of 5.3% last year, down from 7.8% in 2015. This was mainly due to the lacklustre market environment, said Alex Ren, president of Ping An Group at the firm's annual results press conference on March 23.

The insurer's overseas exposure rose to 6% from 4.2% in the second half, reflecting its aim of allocating 10% of its investable assets to foreign markets. Ping An's cash position rose by 1% to 6.3% in the same period, in preparation for the expected cycle of interest rate rises in China, Ren noted.

Chief investment officer Timothy Chan said the 2017 allocations were likely largely to follow those of last year because the firm did not tend to make big allocation changes in response to market moves. Insurance investment is subject to the asset-and-liability matching principle, he explained.

Hong Kong stock attraction

Ping An tends to be the most adventurous of its local insurer peers when it comes to foreign investments, and yet Hong Kong stocks still form a big part of its overseas portfolio. The firm raised its exposure to Hong Kong equities by 2-3 percentage points to about 4% of total AUM last year through the Shanghai and Shenzhen Stock Connect programmes. 

Hong Kong equities now account for about two-thirds of its 6% ($17 billion) allocation to foreign assets as of end-2016. The other 2% was in long-term assets such as private equity, infrastructure and commercial real estate, according to a Bloomberg report on March 23. 

“There are still some Hong Kong stocks that are very attractive in [terms of their] valuations,” Ren told AsianInvestor on the sidelines of the event. “We might continue to buy, and that depends on the market environment and the valuations of the stocks.” Ping An's Hong Kong equity investments are mostly in high-dividend blue-chip companies such as financials.
Timothy Chan, Ping An

Hong Kong’s benchmark Hang Seng Index has already risen 10.5% this year. A further incentive for Chinese insurers to buy Hong Kong-listed stocks is that they don't count towards their offshore allocations and are less affected by capital controls, as Stock Connect trades are settled in renminbi.

International fund houses are eagerly awaiting flows from mainland insurers into investments beyond Hong Kong assets, with which the latter are likely to need help with allocations. Ping An's Chan confirmed in August that the firm would seek external managers to help expand its foreign allocation.

Chinese insurance firms are allowed to allocate 15% of their total portfolios offshore, but the actual allocation stood at 2.33% ($49.2 billion) of total AUM as of end-2016, said Chen Wenhui, vice chairman of the domestic insurance regulator at a press conference on February 22.

That allocation is gradually rising, but mainland insurers face challenges in building offshore exposure givent the tighter constraints on capital outflows imposed by Beijing in recent months.

Still, the mainland insurance capital pool continues to swell quickly. Ping An saw its investable assets grow 13.87% last year to Rmb1.97 trillion ($283 billion).

Allocation changes

As for the insurer's other allocation changes last year, Ping An increased its exposure to preferred shares (by 1.3% to 3.8%); equity investments in infrastructure projects and non-listed equity investments (by 0.8% to 1.9%); property (by 0.7% to 2.2%) and equity wealth management products (by 0.7% to 2.1%).

Last year, the insurer saw drops in its allocations to bonds (by 1.7% to 46.2%), stocks and equity funds (by 1.6% to 8.4%) and debt plan investments (by 1% to 6.9%).

“The decline in percentage doesn’t mean we sold the assets,” Chan said at the March 23 conference. As total AUM grew, Ping An in fact invested Rmb120 billion more in fixed income last year, he noted.

Ping An Life Insurance won AsianInvestor’s 2016 Institutional Excellence Award for the China market.