Prudential CIO spots opportunities from China's energy transition

Prudential’s Group Chief Investment Officer Don Guo is optimistic about the insurer's exposure to China, driven by the country's ongoing structural reforms, particularly in the renewable energy sector.

“China is evolving. In the near term, the challenge is very daunting. The structural reform takes time. But it will get there,” Guo said during a panel discussion at the Milken Institute Global Investors’ Symposium in Hong Kong last week.

Don Guo, Prudential

According to Guo, Prudential has been “significantly” investing in China both in its investment portfolio as well as its life insurance business.

He noted that there has been a lot of noise in the media around investments in China.

“I’ve never seen such pessimism in my whole career towards China,” he said.

The Singapore-based CIO said people should take note of China’s economic reform in many sectors, with the energy transition being the most important.

According to an analysis of Finland-registered Centre for Research on Energy and Clean Air (CREA), China’s clean energy sector was the largest contributor to the country’s economic growth in 2023, accounting for 40% of the GDP growth.

The report estimated that China’s investments in renewable energy infrastructure totalled $890 billion last year, close to the world’s total investments in fossil fuel supply in 2023.  

Guo noted that about one-third of China’s energy supply is renewable, compared to only 17% back in 2008, while solar power and wind power are cheaper than fossil fuel power.

The latest data from China’s National Energy Administration showed that total investment in key energy projects rose to Rmb2.8 trillion ($387 billion) last year, surging 34% compared to 2022.

“So, think of that. China has made a target to be carbon neutral by 2060. But I believe it will be ahead of schedule, simply because the solar and wind have now replaced a lot of fossil fuel energies,” Guo said.

NEW GROWTH DRIVERS 

Besides energy transition, Guo said he’s impressed by the adoption of robotics and artificial intelligence in China.

The same goes for the fast-growing advanced manufacturing sector, which he believes has a strong growth potential, considering the sheer number of traditional manufacturers in the country.

The CIO also sees the consumption upgrade and rising of domestic brands as new growth drivers that can create investment opportunities.

In December 2023, Prudential announced an additional Rmb1.25 billion ($172 million) in cash invested into its 50-50 joint venture insurance business in China, the CITIC-Prudential Life Insurance Company.

This demonstrated Prudential’s commitment to the Chinese market, Guo said.

Prudential operates life insurance businesses in Asia and Africa. Its investment has a large exposure to emerging markets, while its liabilities are often denominated in local currency.

As of the end of 2023, Prudential’s total assets were $174.1 billion, up from $160.2 billion a year ago. This included $160.7 billion in total investments.

In an interview with AsianInvestor last year, Guo said Prudential saw significant opportunities in blended financing investments in emerging markets in Asia and Africa.

As part of Prudential’s alternative asset expansion, its private equity impact fund investments focused on global healthcare and environmental issues in 2023.