Ping An Insurance’s chief investment officer Benjamin Deng remains optimistic about real estate investment in China in 2023, adding that the most difficult time for the industry has passed from a macro perspective.
He also sees structural opportunities in China’s stock market in the new year with the economy starting to expand and said the life insurer is ready to make tactical strategies in the choice of sectors, timing, and pace.
“Based on the sales performance and companies’ earnings so far, we believe that with the improvement of the macro-economy, the prospect of the real estate industry can be expected to turn around and recover,” Deng said during the group’s 2022 annual result press conference on Thursday.
Driven by Ping An’s strategic asset allocation plan, which focuses on extending the duration of its assets to match liabilities, Deng said the group would continue to focus on real estate investment with stable cash flows and with the potential for value appreciation.
These include commercial offices, long-term rental apartments, and industrial park-type investments.
In 2022, Ping An Insurance recorded a net investment gain of Rmb188.8 billion ($27.4 billion), or a return rate of 4.7%, slightly larger than the previous year of 4.6%. However, the total investment return, including capital gains and fair value losses as well as impairment losses on investment assets, was Rmb101.8 billion, or 2.5%, shrinking from 4% in 2021.
The company cited global capital market downturn amid rising rates and inflation, pressure on economic growth in China and geopolitical tensions as well as tightening policies in foreign countries which caused capital markets to decline significantly.
The total assets under management of insurance funds were Rmb4.37 trillion ($633.1 billion) by the end of 2022, growing by 11.5% compared with 2021. About 95% of the AUM were invested onshore.
The portfolio’s average investment yield was 5.5% over the past decade.
RISK UNDER CONTROL
Real estate investment accounted for 4.7% of the AUM, down 0.8 percentage points year to date.
Deng noted that Ping An followed a “6-2-2” allocation for real estate investment. This means that 60% of real estate assets are commercial properties in tier-one cities in China, such as Beijing, Shanghai, and Shenzhen.
The other 40% are real estate debt and equity positions, in which only 30% of equities are listed.
“Hence, overall, the risk [of real estate investment] is controllable,” Deng said.
After a difficult 2022, Deng said the group had “strong confidence” in Ping An's investment performance in into 2023 as China’s economic recovery continues.
“We believe that as the economy recovers and enters an upward expansion range, there will be upward pressure on interest rates, and the interest rate curve may rise slightly throughout the year,” Deng said.
The core strategic asset allocation is to invest in long-term government bonds and extend asset duration, which will continue to well control asset and liability management, he said.
Currently, the mismatch in the duration of Ping An’s assets and liabilities is less than four years, which is shorter than the industry average of about eight years.
Noting that this year China will issue Rmb3.8 trillion of special government bonds, Deng said Ping An will continue to invest in assets with a long duration.
On China’s stock market, Deng was also positive and thought 2023 would present more structural opportunities as China’s economy starts to expand.
“We think this year, China’s stock market will bring us better opportunities. So, under the strategic asset allocation, we will strengthen tactical allocation, including the rotation of sectors, the choice of timing and pace,” Deng said.
Ping An will utilise its own research and analysis teams, as well as the best investment managers in the market, to implement those strategies and invest through mutual funds and fund of funds (FOF) to create excess returns, he added.
On sustainable investment, Richard Sheng, Ping An’s board secretary and brand director, said the group would continue to look for quality ESG investment opportunities, adding allocation to new energy investment, including photovoltaic, wind power, and hydropower projects.
Also this week, China announced at the Two Sessions - its annual plenary parliamentary meetings that ended this week - that it will overhaul the country’s financial regulatory bodies, including replacing the current China Banking and Insurance Regulatory Commission (CBIRC) with a new financial oversight body that falls directly under the supervision of the State Council.
It will be in charge of regulating China’s financial industry with the exception of the securities sector.
Also speaking at the annual result meeting, Ping An president and co-chief executive officer Xie Yonglin said the group welcomes the country’s reforms in the financial system.
“The reforms will help prevent financial risks, strengthen consumer protection, and facilitate the operation of the financial industry in a compliant and orderly manner,” Xie said.
“It will play a positive role in promoting the high-quality and sustainable development of the financial industry,” he said.