Insurance funds to adjust positions
As the SSE Composite Index surpassed 3,300 points, what will be the operations of insurance capitals in the future as major institutional investors?
Investment managers from insurance companies in Beijing and Shanghai indicated that the stock market will see more opportunities than the bond market. Specifically speaking, they have relatively equity positions, but they adjusted positions recently and mainly conducted range-based operations and buy-in and sell-high. For those with fixed revenue, they will extend the duration of the portfolio and increase the proportion of bonds with long durations.
“SOEs reform plus maps” to catch more attention
“Rumor has it that we will reduce the position, but there are no significant changes in equity positions. Based on the internal exchange of the industry, major insurance companies currently maintain relatively stable positions.” An investment manager of a large insurance company responded to the rumor about significant cut in positions by insurance funds.
Based on the judgment that “the market will continue to improve amid fluctuation”, the company adjusted positions. It mainly sold individual stocks with high growth and bought those with adjustments. “As the economic data did not weaken, the economy still enjoys strong potential. The profit of enterprises is likely to maintain a high level. In the short term, the macro liquidity will tighten, but the risks will be under control. The micro liquidity in the stock market will improve and the risk preference will see signs of recovery. The market will continue to improve amid fluctuation.”
Under such judgment, almost all investment managers of insurance companies interviewed indicated that they will continue to explore structural opportunities (including those in the H-share market). There will be more investment opportunities in the third quarter on the whole.
In the opinions of the above investment managers, insurance companies currently focus on the following three aspects. Firstly, as the mixed ownership reform speeds up, they are rosy about stocks with the concept of “SOEs reform plus maps”. Secondly, as the financial industry enjoys potential and defense function, they may overbuy financial stocks. There will be opportunities for buying when financial stocks are under adjustment. Thirdly, with the advancing of the supply-side reform and the restriction of production for environmental protection, the differentiation of the profit structure of enterprises will bring important investment opportunities into the capital market. The profit of SOEs will see significant growth and upstream industries will maintain advantages.
“Although the current fundamentals and market conditions do not support surging trends in the stock market, we believe that the stock market will see more opportunities than the bond market.” All insurance companies under interview indicated.
They believe that the macro economy enjoys huge potential this year. The recovered enterprise profitability, the stable liquidities and policies supporting capitals flowing from virtual economies to real economies as well as other factors boosted the stock market. As the supply gradually exits and the industrial concentration improves, leading enterprises enjoy higher competitiveness and enjoy high investment value. However, the yield rate of bonds maintains at high levels in recent years after previous adjustments and worth investment. Considering the advancing of financial de-leveraging, the bond market will face pressure and there are few potential to make profits.
Increase investment proportion in bonds with long durations
Insurance funds are major institutional investors for bonds in the market. Their investment strategies on bonds are highly concerned in the market. In the short term, insurance companies will focus on trading opportunities in the bond market.
“The liquidity remains the core factor affecting the bond market in short term. The changes of funds outstanding for foreign exchange may have turned positive slightly in August. As the RMB is expected to appreciate, it is expected that the foreign exchange will not affect in short term. However, as the central bank increased reverse repos recently, huge capitals in the open market will mature soon. Under the background with relatively low excess reserves, capitals will highly depend on the injections from the central banks. The liquidity will neither be excessively tight nor see significant improvement. As a result, we believe that it will maintain fluctuation in short term.” An investment manager of an insurance company indicated.
“The company maintains a stable proportion of investment on assets with fixed revenue since the beginning of the year. It appropriately extended the duration of investment portfolio with fixed revenue with the hiking interest rate. We believe that based the current fundamentals and policies, the interest rate is likely to maintain high levels amid fluctuation within the year. The financial regulation will have weaker marginal effects in the future with fewer risks on the fundamentals. Based on the current value of bonds, the interest rate is more likely to drop in the future,” the above investment manager indicated.
Based on the above judgment, the above investment manager indicated that if the yield rate continues hiking in the future, it will further increase the investment in bonds with long durations to extend the duration of the whole investment portfolio.
Many people in insurance companies hold the same opinion. They believe that “the L-shaped economic trend and the economic transformation will drive the interest rate lower in the future. It should take the opportunity of interest rate recovery to extend the duration and ease the pressure on assets allocation.”
Translated by Star Zhang
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