Ping An posts positive 2023 returns amid China market slump
Ping An Insurance Group recorded a 3% total investment return in 2023, amid an economic slowdown in China coupled with falling interest rates and a slumping stock market.
This is mainly due to a balanced asset allocation strategy and a year-on-year improvement in the performance of equity assets, according to the insurer's annual report released on March 21.
“We have a balanced allocation between fixed income and equity, and between growth stocks and value stocks, which enabled us to exceed market benchmarks,” said Benjamin Deng, chief investment officer of Ping An.
In 2023, the Chinese insurer recorded a total investment return of Rmb123.9 billion ($17.1 billion), or 3%, up 0.6 percentage points from 2022.
High-dividend stocks, notably, generated “substantial returns” last year, which are typically large state-owned enterprises (SOEs) with low or mid-single-digit price-to-earnings (PE) ratio, strong cash flows, and solid fundamentals.
Its comprehensive investment return, which the insurer uses as the main metrics for its investment performance, stood at Rmb147.9 billion, or 3.6%, increasing by 0.9 percentage points from 2022.
Comprehensive investment return included total investment return and market value return of certain financial assets measured at fair value through other comprehensive income (OCI), which accounted for almost half of the company's public equity holdings.
The 10-year average comprehensive investment yield stood at 5.4%, higher than the 4.5% embedded value long-term investment return assumption.
As of the end of 2023, Ping An’s insurance funds investment portfolio had Rmb4.72 trillion in assets, up 9% from 2022.
Among them, fixed income accounted for 72.7%, with only 1.7% in corporate bonds. The allocation to public equities was 10.7%. Both asset classes’ weighting was slightly higher compared to 2022.
Under China's foreign exchange controls, the vast majority of Chinese asset owners' investment assets are in the domestic market.
A BALANCING ACT
The year 2023 saw China’s economic recovery slower than expected. Amid the central government’s efforts to boost growth, China’s interest rates were lowered twice, with the one-year loan prime rate (LPR) cut from 3.65% to the current 3.45% level.
The 10-year Chinese government bond yield was on a downturn in 2023, largely held below 2.8%. It currently yields around 2.4%.
Meanwhile, the onshore stock market was among the worst equity performers globally in 2023. The CSI 300 Index went down 13.8% throughout the year.
“We had allocated bonds in advance in the past, enabling us to lock in higher yields than now, and thus generating a lot of hidden value,” Deng said during Ping An’s annual result press conference on March 22.
He noted that the balanced allocation between equities and bonds, as well as such balance in equity allocation, allowed the insurer to diversify risks and keep its stock returns beating benchmarks by double-digit percentage points in both 2022 and 2023.
“Our investment performance is stable, and risks are well managed,” Deng said.
Noting that China is in a falling interest rate environment, Deng is optimistic about the portfolio’s resilience across different economic cycles and long-term performance.
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“We will remain in a good place…as long as we optimise long-term strategic asset allocation and remain disciplined to adapt to market volatilities, while keeping the risks well diversified,” he said.
OPTIMISTIC ABOUT 2024
The insurer is optimistic about prospects for the Chinese market.
“We believe that China's economy is bottoming out, as demonstrated by the performance of the stock market in the first quarter,” Deng told AsianInvestor.
The CSI 300 was up 4.7% year to date.
Deng said Ping An will place more emphasis on sectors related to 'new productivity' with national policy support, such as green and smart industries, while continuing to add exposure to SOE stocks.
The insurer will also continue to increase the duration of its bonds for higher yields and better liability management.
Additionally, Ping An will strengthen its capabilities in bond trading to look for opportunities in small market cycles, Deng said.
BARBELL STRATEGY
In an interview with AsianInvestor recently, Deng said Ping An expected a modestly high single-digit return for the onshore Chinese equity market this year, noting that investors need to be selective.
Ping An has a barbell allocation strategy in its stock portfolio, with a healthy split between high-dividend value stocks and growth stocks.
High-dividend stocks have been providing decent returns for the insurer in the past two years.
The CIO is bullish about these stocks’ performances in the long run, believing their prices are undervalued.
Amid a falling-rate environment, Ping An is also adding investments in the private market to get higher long-term returns.
This article has been updated with Ping An's comprehensive investment return data.