China’s Ping An Insurance is pressing ahead with adding positions in real estate and infrastructure investments, despite net profits dropping by $3.2 billion because of exposure to a troubled domestic property developer in the first half of 2021.

The Shenzhen-based insurance leader sees stable dividends and rent income from real assets as a key strategy for generating return and matching liabilities amid a continuous low-yield environment.

Xie Yonglin

Target assets include office buildings, logistics, public and private rental housing, industrial parks, and urban renewal projects.


 

“We believe the central government will continue to offer fiscal support on infrastructure to stimulate regional economic development,” said chief investment officer Timothy Chan during Ping An’s interim results press conference on Friday (Aug 27).


 

“We will closely watch domestic credit risks in different industries, especially real estate. We need to be cautious about liquidity and the impact on the economy,” he stressed.

Ping An is one of China’s largest property investors, with an annual budget of 50 billion yuan ($7.7 billion) for new real assets, 10% of the total it spends on new investments each year, according to Chan.

On Monday, Reuters reported that the China Banking and Insurance Regulatory Commission had opened a probe into Ping An’s investments in the property market to uncover and contain risk connected to its property investment portfolio.

The regulator also ordered the insurer to stop selling alternative investment products, which are typically tied to the property market, Reuters wrote, citing anonymous sources.

Ping An in a statement to Reuters said its real estate exposure was significantly lower than the regulatory cap. It did not respond to Reuters' queries on the regulatory probe.

“The market has some misunderstandings about Ping An’s real estate investments,” said president and co-chief executive officer Xie Yonglin at the August 27 press conference.

Timothy Chan

Xie stressed that Ping An invests in China’s real estate for rental income instead of land speculation.

“Real estate is an integral part of China’s economy. The allocation of a certain percentage to real estate is a very important part of our portfolio management…A continuous and stable rental income is an important strategy in assets selection.”

In late June, the company completed the largest deal in the sector so far this year, acquiring six Raffles City office properties across major cities in China from Singapore-based developer CapitaLand for $5.1 billion.

The occupancy rate of the acquired buildings is over 90%, which offer over 5.5% of rental income each year, CIO Chan noted.

At the end of June, its property assets were valued at 66.7 billion yuan, accounting for 1.8% in the portfolio, up 0.1% from end-2020.

RETURN DROP

In the first half of 2021, Ping An recorded a 3.8% net investment return, down 0.3% from the 4.1% in the same period last year. Net investment income was 77.6 billion yuan.

Its total investment assets under management (AUM) grew 1.2% to 3.79 trillion yuan ($585.8 billion) as of June 30, 2021.

“Investment yields were under pressure in the first half of 2021 due to volatile capital markets and increasing impairment provisions,” the insurer said in its interim report.


 

As of June 30, bonds accounted for 49.6% in the portfolio, down 0.6% from the end of 2020. Stocks positions also went down 0.5% to 7.9%. Private equities allocation went up 0.1% to 2.3%.

Ping An Insurance Investment Portfolio as of June 30, 2021 (Click for full view)

In the first half, Ping An’s net operating profit fell 15.5% to 58 billion yuan. The impact of its 54 billion-yuan exposure to China Fortune Land Development, an industrial parks developer that defaulted on $530 billion of dollar-denominated debt in March, was a cause of the worse-than-expected profit.

China Fortune Land Development is the country’s first property developer to fail to make a debt repayment since Beijing tightened controls on the debt-laden sector last year.

“Despite the China Fortune incident, Ping An’s investment assets remain safe and sound,” CIO Chan said, noting that short-term fluctuations won’t change Ping An’s long-term investment strategy, which is to combat cyclical risks by extending the duration of assets to close the gap between liabilities.     

In addition to assets that produce stable rental income, Ping An will also look for good long-term investment opportunities in new economy, including new energy, environmental protection, energy saving, carbon neutrality, manufacturing upgrading, and healthcare.

By the end of June, Ping An’s new economy-related investments were about 700 billion yuan.

STABLE CHINA LIFE

Also releasing its interim results last week, China Life Insurance saw its net investment return come in at 4.33% for the first half of 2021, up by 0.04% compared to the 4.29% in same period last year. Total net investment income stood at 89.8 billion yuan.

The Beijing-based life insurer’s total investment assets reached 4.46 trillion yuan ($689.6 billion), up 8.8% compared with the end of 2020.

China Life Insurance Investment Portfolio as of June 30, 2021 (Click for full view)

The results are down to a consistent increase in long-term bonds and diversification of its fixed income portfolio, it said in the interim report released on Aug 25.

It also closely kept pace with equity market fluctuations to optimize positions and realize gains; and explored new strategies for alternative investment, optimizing the entrustment mode.

In the first half, it allocated more to government bonds with long durations by taking advantage of interest rate hikes, and selected experienced managers to invest in senior credit bonds.  

At the end of June, bond investments accounted for 44.2%, rising by 2.3% from the end of 2020. The allocation to private equities and other alternative equity investments also rose to 5.8% from 5.4%.

China Life’s green investments reached 250 billion yuan as of end-June, including clean energy, energy saving, and environmental protection-themed investments.