Ping An CIO expects global rally as Fed rates peak

One of China's biggest insurers is positioning for a global market boost from the Federal Reserve's looming pivot to lower interest rates, anticipating gains for its overseas investments.

“Generally speaking, this kind of interest rate cut is good news for the capital market,” said Benjamin Deng, Chief Investment Officer at Ping An Insurance Group. 

“Whether it is for the US, Asia Pacific, or the Chinese stock market, it will generate good momentum,” he explained at the firm's interim results press conference on August 23.

“So, we look forward to having such monetary policy to give a boost to the capital markets."

Benjamin Deng
Ping An

Ping An is one of the largest insurance companies in China. As of June 30, it managed Rmb5.2 trillion ($730.1 billion) in insurance assets, an increase of 10.2% year to date.

The firm, along with other domestic asset owners, makes overseas investments via China’s Qualified Domestic Institutional Investor (QDII) program, created to facilitate the nation’s foreign exchange controls.

Hence, only a small fraction of Ping An’s total assets is invested offshore, mainly in developed markets. Given its massive asset base, the value of these foreign holdings still amounts to billions of US dollars.

“We believe the risks of these investments are manageable. In the future, as the US starts interest rate cuts, the appreciation potential of these assets is significant,” Deng said.

FED PIVOT

During the Fed’s just-concluded annual conference held in Jackson Hole, Wyoming, Chairman Jerome Powell said “the time has come” to pursue monetary loosening, beginning next month. All that is left for the market to debate now is the pace of future cuts.

The global markets responded with a risk-on rally, as investors positioned for lower borrowing costs. The MSCI All Country World index climbed, the US dollar slipped, and US Treasuries’ yields fell after the conference.

Deng expects an initial 25-basis-point cut in September, followed by another likely cut of 25 basis points towards year-end.

Given its limited QDII quota, Ping An puts more overseas assets in private equity for higher long-term returns and for a better liabilities match. The remaining overseas assets are allocated to global multi-asset strategies run by global managers.   

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In the first half of 2024, Ping An reported overall investment returns of 4.2%, or Rmb126.7 billion, up 0.1 percentage point from a year ago, driven by investments in long-duration government bonds and value stocks in the domestic market.

The portfolio recorded a 5.4% average overall investment yield over the past 10 years.

Ping An insurance funds investment portfolio (Source: Ping An)

DOMESTIC PLAYS

Over half of Ping An’s assets in the Chinese market are domestic bonds. In the first half of 2024, the insurer increased its exposure to bonds to 60.7% of total assets, up from 58.1% at end-2023.

Amid China’s low and falling interest rates, Ping An engaged in early positioning and proactively added long-duration bonds and value stocks, which supported its “healthy” investment returns in the first half, Deng said.

In particular, the insurer locked in returns by increasing allocations to long-duration central and local government bonds and policy bank bonds at a faster pace.

Looking ahead, Deng plans to maintain a “barbell” strategy between bonds and equities, as well as between value and growth stocks in the equity portfolio in the second half.

The insurer will accelerate bets on "new quality productive forces" such as green technology per Beijing's policy push, he added, which calls for heavy investment into advanced technologies to transform and upgrade the economy.

Deng said the insurer has been accelerating its research in relevant fields, and remains in constant communication with scientists, enterprises, and other industry players. The CIO found the tech community's investments into research and development, and the speed of progress, to be “significant”.

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He sees the once-mighty property market as existing in a period of adjustment while many government policies are introduced.

“We see the old productive force bottoming out, while new forces are being generated. Therefore, we have sufficient confidence in the trend of China's economy improving in the future,” Deng said.

ALSO READ: Ping An posts positive 2023 returns amid China market slump

China’s GDP growth will meet the 5% target in 2024, creating “massive” investment opportunities, he added confidently.

“We will strive to achieve decent and stable investment performance throughout the years,” he said.

Ping An’s overall investment return was 3.6% in 2023, an increase of 0.9 percentage points from 2022.