Mainland insurance funds likely to add investment in HK stocks
As a bridgehead for overseas investment, Hong Kong is attracting more and more insurance institutions from the mainland. Particularly, after mainland investors were allowed to invest in Hong Kong stock market via Shanghai-Hong Kong Stock Connect, the scale of insurance capital investing in Hong Kong stock market has expanded remarkably, and that investing via the Shanghai-Hong Kong Stock Connect approached 200 billion yuan.
Meanwhile, policy supports are increasing. It is reported this week that next the China Insurance Regulatory Commission (CIRC) will strengthen preparation of policies and introduce policies in due time based on the industry need and the actual market conditions to further facilitate insurance companies to play a role as institutional investors and increase investment in Hong Kong stock market. Several investors from the insurance industry said that “the move will, to some degree, stimulate insurance capital’s enthusiasm for Southbound Trading.”
Hong Kong stock market becomes increasingly attractive to insurance capital with policy support
As interest rates remain lower, the asset management market raises a concern for asset shortage. It is also a concern of the insurance industry which owns trillions of yuan to invest. The scale of assets is expanding rapidly, and reinvestment assets continue to come due. How will the insurance industry invest such a large amount of capital?
An investment head from an insurance institution gives an answer: adopt a multi-currency and diversified asset management mode. And Hong Kong is usually the first stop for mainland insurance companies to make investment overseas. For many insurance companies, the proportion of HK dollar-denominated assets accounts for over half of their overseas investment balance. Their equity investment overseas mainly concentrates in Hong Kong.
“China’s insurance firms are gradually going global by taking advantage of Hong Kong’s position as an international city and financial center. Hong Kong is not only a starting point for insurance capital to invest overseas but also connects with the international market. Insurance capital going global is a bonus of the internationalization of renminbi. It also effectively reduces the cost and risk of trading,” said Cao Deyun, executive vice-chairman and secretary general of the Insurance Asset Management Association of China (IAMAC), when speaking of what Hong Kong means to the mainland’s insurance capital for overseas investment.
Policy support is an important catalyzer. The CIRC issued a document on regulating the insurance funds’ participation in the Shanghai-Hong Kong Stock Connect pilot. It adds a new channel for mainland insurance institutions to invest in Hong Kong market. As the QDII quota is in tension, the launching of the Shanghai-Hong Kong Stock Connect has a profound significance.
In an interview with Xinhua News Agency, an official from the CIRC provided a group of data, “currently, the size of insurance capital investing in Hong Kong stock market via the Shanghai-Hong Kong Stock Connect reaches 174.358 billion yuan. 111.746 billion yuan is invested directly, while 62.612 billion yuan is invested via asset management products issued by insurance asset management companies”. The CIRC official disclosed that next the CIRC will strengthen preparation of policies and introduce policies in due time based on the industry need and the actual market conditions to further facilitate insurance companies to play a role as institutional investors, increase investment in Hong Kong stock market and promote a win-win development of both sides.
Insurance funds favor blue-chips in Hong Kong stock market
Yang Delong, chief economist of First Seafront Fund, also noted that more and more insurance institutions tend to invest Hong Kong stock market. “Since the insurance funds were allowed to invest in the Shanghai-Hong Kong Stock Connect last year, insurance funds are more willing to go southbound. In the first half of this year, most insurance institutions increased allocation in Hong Kong stocks,” Yang said.
In his view, the reasons behind include the undervaluation of Hong Kong Stocks, consideration for dispersing risks and improving returns and tension in QDII quota. “It is expected that there will be still a large amount of insurance funds to invest in Hong Kong stock market.”
Similar to their investment preference in the A-share market, insurance funds also favor blue chips in the Hong Kong stock market. The above CIRC official said that the underlying investments of insurance funds in the Shanghai-Hong Kong Stock Connect mostly are blue chips, accounting for more than 60 percent. They mainly invest in the financial sector, growing industry and consumption industry.
The reporter learnt in talks with several insurance institutions that in addition to insurance asset management institutions, some insurance companies have plans to further increase investment in the Shanghai-Hong Kong Stock Connect. The high enthusiasm of insurance institutions can be seen in the data released on the website of the Insurance Association of China. Taikang Asset Management Co., Ltd. and Sinosafe Assets Management Co., Ltd. have issued asset management products that will invest in Hong Kong Stock connect.
It is noteworthy that the reporter learned in the interview that in addition to large blue chips with high dividends, insurance institutions also favor the following three categories of stocks: companies whose revenues from main business are settled with the US or Hong Kong dollars, other appreciation currency, such as Hong Kong local companies, public utilities; growth stocks, such as technology, education, gaming stocks; small and medium-cap blue chips that are consistent with mainland capital’s preference, particularly quality small and medium-cap blue chips whose capitalization ranges from 5-20 billion Hong Kong dollars.
Translated by Coral Zhong
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