China Life looks to US equity gains after rate hikes stabilise

The Chinese life insurer is also keeping its eye on undervalued Hong Kong equities to boost its $11 billion overseas investment portfolio.
China Life looks to US equity gains after rate hikes stabilise

One of China’s largest asset owners - China Life Insurance Company - is closely monitoring the US stock market, waiting for the right time to add positions as the market tends to do well at the end of a rate hike cycle.

“We expect the US stock market to continue to be under pressure and volatility amid fluctuating inflation, rising risk of recession, and the emergence of financial risks resulting from consecutive and rapid rate hikes,” said Liu Hui, vice president of China Life Insurance at the company’s annual results press conference in Hong Kong on March 30.

The market consensus is that, based on historic performance, US stock and bond markets tend to deliver good returns six months after the rate hike ceases, she noted.

“While the macro uncertainties remain, we will keep monitoring when the Federal Reserve’s rate hike stops – as the market expects - in the second half,” she said.

As of end-2022, China Life’s investment assets were worth Rmb5.06 trillion ($735 billion), a 7.4% increase from end-2021. A total of 1.5% of its assets, or $11 billion, were invested overseas.

China Life Insurance's investment portfolio as of the end of 2022 (Source: China Life Insurance)

Its total investment return (taking into account the current net fair value changes of available-for-sale securities recognised in other comprehensive returns) in 2022 was 1.92%, down by 2.95% from 2021.

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In 2023, Liu said China Life would focus on Hong Kong equities in its offshore exposure, especially adding positions in high-dividend stocks.

“After two consecutive years of sharp declines, it’s safe to say that the current valuation of Hong Kong stocks is reasonably undervalued. In addition, with the support of China's economic recovery, the fundamentals of enterprises are improving,” Liu said.

“So, we think with the recovery of market confidence, the attractiveness of Hong Kong stocks will increase,” she added.

Hong Kong equities have, since 2020, experienced a downward trend for three consecutive years. In 2021 and 2022, the Hang Seng Index slumped 14% and 15.5% respectively, dragged by China’s regulatory crackdown, slowing economic growth, US rate hikes and Covid disruptions at home and abroad.

As China reopened, Hong Kong equities slightly recovered by 2.8% in the first quarter of 2023.

In light of the risks that emerged from the recent Silicon Valley Bank (SVB) fallout and UBS’s takeover of Credit Suisse, Liu said China Life is also putting more effort into its risk management.

“Such incidents prompted us - as a liability-driven insurance company - to pay more attention to building our comprehensive risk management system, adhering to our prudent risk management concept, and protecting the security of our assets through various measures,” Liu said.

She noted that China Life has no direct exposure to banks in trouble, such as SVB and Credit Suisse.

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