Ping An CIO bullish on 'undervalued' Chinese state firms

The Chinese life insurer's investment chief is positive about the long-term stock performance of Chinese state-owned enterprises under a 'valuation system with Chinese characteristics'.
Ping An CIO bullish on 'undervalued' Chinese state firms

Ping An Group’s chief investment officer Benjamin Deng said he’s positive about the performance of low-volatility, high-dividend Chinese equities this year, especially state-run enterprises with low valuations.

“We've been hearing a lot about the Chinese characteristic valuation system…A lot of the SOEs (state-owned enterprises) have been running on good cash flows, good profitability, stable management. They will play a more constructive and central role in the economic development in the future,” Deng told a keynote interview at AsianInvestor’s 18th Asian Investment Summit recently.

Benjamin Deng,
Ping An Group

In the first quarter of 2023, there was a sharp run on the share prices of Chinese SOEs across different sectors such as oil, telecommunication, advanced manufacturing, and infrastructure. This drove relevant ETFs and indexes up over 10%.

The rally came after China Securities Regulatory Commission Chairman Yi Huiman put forward the term, “valuation system with Chinese characteristics”, or “Zhongtegu”, during a speech in November 2022. It means a valuation approach that suits the characteristics of Chinese SOEs to boost their valuations and importance in the economy and the financial market.

Previously, shares of Chinese private companies consisted of a large part of China's stock rally, while share prices of SOEs didn’t see any sharp changes.

The valuation of SOEs is generally lower than that of private enterprises, with the former having price-earnings ratios of as low as five.

“In the past, their market valuation wasn't really reflective of their whole quality,” Deng said, taking note of the recent rally of these SOEs.

“That's something that is going to be very thematic in China, not just for now, but for years into the future. It's part of the design in the macro reform of the country to have these large institutions play more important roles and to really deliver more value to the society.

“And that's where we are putting our money in today,” the CIO said.

A-shares Chinese SOEs performance (Source: Ping An Group)


In the first half of 2023, another notable theme in China’s stock market is the booming digital economy sector buoyed by the trending of ChatGPT and GPT4 globally.

However, Deng said that Ping An doesn’t have a part in that rally.

When ChatGPT went viral globally in the first quarter, Chinese companies quickly joined the contest in developing similar technologies and coming up with a Chinese version of the chat box to fill the gap.

So far, consumers in China haven’t been granted access to the American platform, including consumers in Hong Kong.

“It was a weird market in the first half of the year. We got the telecommunication [sector] coming up because of ChatGPT and all the [relevant] technologies,” Deng noted.

Relevant sectors included artificial intelligence, domestic software, 5G, cloud computing, semiconductor industry chain.

Source: China Asset Management

“But we are slower…We are a big ship. So we can’t really chase those small thematic sectors. So we did fall behind on that small bubble,” he said.

“But overall, we think we are value-driven investors, and value will come back. We're not so worried about falling short on the ChatGPT themes,” he added.

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Ping An holds a traditional 70-30 split between fixed income and other assets, including public and private equity, real estate, and other alternative investment.

Ping An’s investment portfolio of insurance funds (Source: Ping An Group)

On the equity side, the life insurer is balanced between high-yield, low-volatility equities and growth equities under a barbell strategy, which means both types of equities are equally important in the equity portfolio.

“This has enabled us to run a relatively shallow dip last year,” Deng said.

For the rest of 2023, the CIO said he’s positive about low-volatility, high-dividend stocks.


According to UBS estimates, all A-shares will post a 15% year-on-year earnings growth in 2023.

“We expect the first quarter of 2023 to be the trough of full-year earnings, and earnings growth to improve gradually,” said Meng Lei, China equities strategist at UBS Securities.

Meng suggests overweight consumption recovery, digital economy and "valuation system with Chinese characteristics".

“We prefer high-quality SOEs that benefit from the 'valuation system with Chinese characteristics’,” Meng said in a note on May 4.

Specifically, he suggests overweight leisure services, home appliances, food and beverage, healthcare, computer, and insurance, while underweight banks, energy, materials, textiles, and agriculture.

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