【Stock】Mainland Insurance funds give HK stocks a shot in the arm

Hong Kong stock market is welcoming a boom after the China Insurance Regulatory Commission (CIRC) announced on 8th Sept to allow mainland insurance firms to invest in Hong Kong stocks through the Shanghai-Hong Kong Stock Connect program.

Currently, RMB is not freely convertible and China’s capital market is under strict regulations. Therefore insurance companies from the Mainland had to acquire QDII (Qualified Domestic Institutional Investor) quota to invest in Hong Kong before the rule relaxation. Although QDII’s investment ceiling of US$90 billion a year is not small, it is mainly used by fund companies while insurance capital only occupies a tiny portion.

Under the new policy, insurance capital from Mainland China can invest in the Hong Kong market directly through the Hong Kong-Shanghai link, which means the traffic jam of insurance capital is eased as it has a wider channel to invest in overseas markets. Mainland insurance companies can only invest 15 percent of its total assets, or an estimation of about RMB1.85 trillion, in overseas markets, under the CIRC regulations. However, only about RMB0.2 trillion of such capitals were invested in overseas assets so far due to limited investment channels. Therefore, theoretically, the remaining RMB 1.6 trillion is now free to invest in Hong Kong stocks.

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The Hang Seng Index busted through 24000 points on 9th Sept, a day after the news was announced, taking the benchmark index to a 13-month high. Investors expected a huge amount of new funds to flow to the Hong Kong stock market from mainland insurance companies. “Insurance companies’ primary incentive to buy Hong Kong stocks is to enhance their investment return,” said Wenjie Lu, UBS H-share strategist, in an investment note. “The high-dividend-yield and stable-asset-return stocks listed in Hong Kong are thus appealing given insurers’ long investment horizon”, he said.

Mainland insurers are getting higher returns in Hong Kong with the new investment channel, which will enhance their competitiveness against their peers operating in Hong Kong.

Chinese financial think-tank researcher Yang Guoying said, “Hong Kong’s insurance products are popular among high-net-worth-individuals and even some middle-class people from China due to the depreciation of RMB and the economic slowdown in China. However, with the expansion of investment market, Chinese insurances may put a threat on Hong Kong’s insurance industry.” Yang also said, “I believe the scale of Chinese insurances will be much larger and it is highly likely that it will become a big hit in the future.”

The blue chip Hang Seng Index was up more than 10 percent from the end of July to 9th Sept while Chinese insurance company Ping An Insurance Group (2318) outperformed the market and rose about 20 percent. However, shares of insurance players in Hong Kong are laggards in the recent rally. The stock price of Prudential (2378.HK) rose 5.6 percent and AIA (1299.HK) was up 6.8 percent only during the same period.

Change in PING AN Insurance(2318)’s stock price after the announcement of the new investment policy

Sun Tianhong at China Enterprise Capital Union Boao Financial Research Institute, said the impact might not be that big. “Investment is a long-term act, and mainland insurances still lack free choices to invest all over the world. There is still a long way for mainland insurances to catch up with local ones.”

Yang expects the Chinese government to tighten the rules in the short term if outflow is huge and affects foreign exchange reserves in a great way. But he believed there is no need for rules to stem capital outflow in the long term because the Chinese government with a huge amount of foreign currency reserves at around four trillion dollars should be able to deal with such problem. What is more, China has shown its determination of gradually liberalizing its capital market and yuan.

(Reporting by Huang Shiting, Editing by LIU Da)

《The Young Financial Post 新報人財經》



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