Ping An bets on policy push, SOE stocks amid China uncertainty

​​Ping An Insurance's investment chief expects two US rate cuts this year, allowing China to follow suit — coupled with more fiscal stimulus on property and domestic consumption.
Ping An bets on policy push, SOE stocks amid China uncertainty

Ping An Insurance Group's Benjamin Deng is banking on China's policy support and high-dividend state firm shares to navigate economic headwinds, while anticipating US rate cuts that could allow Beijing to further ease monetary conditions.

The chief investment officer expects the Federal Reserve to lower interest rates twice this year - by 50 basis points in total - potentially paving the way for two rate reductions in China as it aims to maintain a stable currency.

Deng anticipated the Fed’s first rate cut to start in the third quarter, driven by both economic and non-economic factors.

“That will give more room for China to lower interest rates, because China wants to maintain a stable currency rate and at this moment, [its] hands are tied by the rates environment,” Deng said during AsianInvestor’s 19th Asian Investment Summit last week.

Benjamin Deng, Ping An

The Chinese yuan has been weakening against the US dollar since December last year, from 7.09 per dollar to the current 7.24.

Beijing would maintain a stable monetary policy and an active fiscal policy. The interest rate in China can go down another 10 to 20 basis points this year, Deng said.

“I think the central bank is waiting for a better environment, given that China still has a lot of room to relax on the fiscal side. Fiscal policy will be the main punch in driving the economies,” Deng said.

“What we're going to see is more fiscal policies toward stabilising the real estate market. And we've seen policies coming out — but these are all high-level national policies. We're going to see more implementation, more detailed policy directions in the coming months,” he added.


On May 17, Chinese authorities announced a series of forceful measures to stimulate the property market, including cutting interest rates of mortgage loans and down-payment ratios for homebuyers.

Meanwhile, the Ministry of Finance also announced the issuance of super-long-duration special government bonds worth Rmb1 trillion ($140 billion) for specific purposes, including financing long-term projects in real estate. This move is expected to alleviate financial pressure on local governments.

Despite the stimulus packages, Deng noted that the market will see small developers that focus on lower-tier Chinese cities — third-tier or below — struggle to survive.

“The national policies are to maintain the apartment buildings to be constructed and delivered. But whether these small companies can survive, that's a big question mark,” Deng said.

Hence, Ping An will not allocate to smaller residential developers, but focus on large developers whose projects are mostly in first-tier cities, in which home prices and sales performance are more stable, allowing stronger cash flows and business fundamentals.  

Meanwhile, Deng expected more fiscal policies toward large-scale industrial equipment upgrades and household appliance replacements.

There are many ways for the government to implement these policies. This includes providing financial incentives to encourage replacement of home appliances or factory machinery, he noted.

“But more importantly, it is to raise the standard of carbon neutrality and the level of automation. Once the national standard is raised, then the factories, the ports, the railways will have to replace their machinery to meet the new standards,” he said.

The government can provide financial incentives to help create secondary markets with more sales channels, or lead purchasing of redundant machinery, he added.


Amid uncertainties in both China’s economic recovery and global markets, Deng said the worst-case scenario would be a market crash caused by non-economic or financial reasons like geopolitics or policy mistakes by central banks.

To ensure its portfolio can weather extreme conditions, Ping An will maintain a double barbell asset allocation strategy between both long-duration government bonds and risk assets, and between growth stocks and high-dividend stocks in the risk asset portfolio.

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As of the end of March, Ping An’s insurance funds investment portfolio managed Rmb4.93 trillion ($693 billion) in assets.

Within Ping An’s risk asset portfolio, more than half of its assets are invested in high-dividend Chinese stocks, which comprise state-owned enterprises (SOEs) across various sectors such as financial services, energy, telecommunication, and infrastructure.

The rest of the risk assets go to growth stocks and private equity investments.

Year to date, Ping An’s high-dividend stock portfolio has gone up by 18%, beating the CSI 300 Index, which was up about 6.4%. This is driven by the cheap valuation and strong and stable underlying cash flows of these SOEs.

“They have given us fantastic returns this year,” Deng said.

ALSO READ: Ping An CIO bullish on 'undervalued' Chinese state firms

“In the future when China [goes through a] transformation of the economy, these large SOEs with high dividend payouts [and] low valuations are going to play more and more prominent roles in driving the economy,” he said.

The senior executives of these SOEs are also tasked with managing their companies’ stock prices. Practical measures include share buybacks and dividends.

“All of these policies are pointing toward higher valuation of these stocks,” Deng said.

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