Ping An Insurance, China’s largest life insurer, is aiming to focus on logistics, Reits, and select private equity additions in 2021 as it seeks to refine its alternative asset investments in an effort to improve returns, according to chief investment officer Timothy Chan.

Speaking to AsianInvestor via email, Chan noted that China has enjoyed a faster economic recovery from the Covid-19 pandemic than almost anywhere on earth, with the nation likely to enjoy positive GDP growth of around 1.2% this year, according to S&P Global Ratings. However, internal consumption in China may take time to regain its vigour, so Ping An is instead looking to focus its investing in areas likely to benefit from the government’s priorities in its newly announced five-year-plan.

Timothy Chan, Ping An

The 14th Five-Year Plan (2021-2025) was announced on November 3. It emphasises high quality development and the “dual circulation” strategy (internal circulation refers to domestic economic activities, while external circulation relates to China's economic links with the outside world), market reform and openness, tech self-sufficiency, urbanisation 2.0 and green economy.

The insurer, which had a Rmb3.44 trillion ($520 billion) investment portfolio as of June 30, is unlikely to change its overall asset allocations. However, Chan said the group aims to take advantage of the new plan by focusing on greater investments into A-shares, office and logistic property investments and it intends to further push forward on private equity investments.

Ping An had 70.6% of its portfolio invested in debt financial assets as of the end of June, and another 13.3% in equity financial assets. Its investment portfolio generated an annualised total investment yield of 4.4%, according to its 2020 interim report.

The group has total assets of Rmb8.85 trillion ($1.35 trillion) as of June 30, representing a 7.6% growth year-on-year.

PROPERTY SECTOR PUSH

Ping An predicts that China should continue to enjoy an economic recovery in 2021, which should benefit urban areas in particular. As a result, Chan said his team will particularly look for opportunities in office, data centres, healthcare and logistic properties from tier 1 cities.

“The pandemic did provide us a higher chance for getting high quality assets at a relative-lower value,” he said.

Chan told that Ping An will pay close attention to such assets, looking for the opportunity to source relatively higher dividends payout such as the newly-announced pilot real estate investment trusts (Reits) programme. 

In May the Chinese financial regulators announced a long-awaited pilot programme for Reits. This will allow China’s mutual funds to issue public Reits that can be bought and sold like stocks on exchanges, according to National Development and Reform Commission and the China Securities Regulatory Commission.

Then in August this year, the country released detailed guidelines on the pilot Reits programme. The guidelines noted that the trusts will have to allocate over 80% of their total assets to infrastructure-based securities and must pay out over 90% of core earnings to investors annually.

Beijing has picked infrastructure segments such as warehouses, tolled motorways, airports, industrial estates, urban utilities, sewage and garbage processing facilities to be some of the first to test the water via these new Reits, but applications are still waiting for the nod from regulators.

TARGETING 12%

Chan believes that local A-shares will be among the most appealing investments in 2021 too, and added that there are also possibilities in Hong Kong-listed H-shares, due in part to a price disparity between the two.

“In 2021, we will see [companies] earnings recovery to be supported by recovering economy,” he noted. “For companies listed in [the] Hong Kong stock exchange, the overall valuation stays low currently. A stronger renminbi will also support H-shares to reach a Davis Double Click next year.” (A Davis Double Click targets capital gain by buying stocks with lower price-to-earnings ratios).

After seeing its valuation weaken during 2019, the renminbi began rallying in May, and has remained bullish after the US presidential election on November 3. It is was trading at Rmb6.5651 to the US dollar on Wednesday (December 2), more than 9% stronger than this year’s weakest valuation of Rmb7.1785 in late May.

The strengthening economy should be a fillip for equities into 2021, and Chan said he expects to see some strong performance from stock investments. “For equity investment, we will keep an eye on all China-related assets for both onshore and offshore opportunities and in return rate, we are targeting an average 10% to 12% performance in such assets,” he said.

PING AN TO KEEP LONG-TERM ASSET ALLOCATION UNCHANGED

Asset Category

As of June 30, 2020

As of December 31, 2019

Cash and cash equivalents

3.2%

3%

Term deposits

6.5%

6.6%

Debt Financial Assets

70.6%

70.1%

Equity Financial Assets

13.3%

14%

Long-term Equity Stakes

3.8%

3.8%

Investment Properties

1.7%

1.9%

Other Investments

0.9%

0.6%

Source: Ping An Insurance (Group) Interim Report 2020

PRIVATE EQUITY PUSH

In addition, Chan told that the group is planning a total of Rmb10 billion ($1.52 billion) fund raising for its private equity investment in 2021, with these investment likely to help the group ensure more alpha.

“We favour fast-growing projects with a good track record, considering pre-IPO stage investments,” he told.

Unlisted equities assets stood at 2%, or Rmb68 billion ($10.35 billion), of Ping An’s overall investment portfolio as of end of June.

Most recently, in October, the group’s subsidiary Ping An Overseas raised a combined $875 million for Ping An Global Equity Selection Fund and the Ping An Global Equity Fund. The deal was anchored by Singapore sovereign GIC and Switzerland-based Montana Capital Partners, marking another step in the group’s ambitions to expand its private equity capabilities.

The private equity team deployed a dual strategy of fund investing or co-investing in the overseas markets, plus direct investing in the Greater China region, according to a news release at that time.

Another area Ping An could look to invest more into is environmental, social and governance (ESG) investing, which is enjoying a boom in China according to the latest report from the Ping An Digital Research Center.

"We have been applying ESG integration to our investment team which will ultimately help us to improve risk management [abilities] for a stable investment return," he said.

Investment flows into ESG-themed exchange-trade fund (ETF) investments in China increased 464% from $4.9 billion in 2018 to hit a record high of $20.5 billion in 2019, according to the report.

Chan highlighted that Ping An has targeted itself as a ESG leader in the global stage. As of June 30, its responsible investments amounted to Rmb1.18 trillion ($180 billion).