Financials and Ping An Insurance

Two new trades for the portfolio as of today’s close. As previously announced SAFT is being bought by Total and therefor I sell out of my full holding. In comes a new position with the cash from SAFT in form of a Chinese Insurance Giant called Ping An Insurance, listed on the Hong Kong Stock exchange. Let’s first have a short discussion about the Financial sector.

Financials looks cheap

Most Financial stocks around the world are struggling in this low growth, low interest rate environment. Particularly European and Emerging Markets related Banks. Mr Market has not been slow to hammer down stock prices to levels not seen since 2008 in many cases. Just looking at quick metrics like dividend yield, P/E, relative valuation to history, stock prices looks compelling for many Financials. One can mention companies like Deutsche Bank, Credit Suisse and Standard Chartered, giants that at the moment according to the stock chart, look like fallen giants. The reasons for these banks downfall are not always easy to decipher, but its a mix of: negative interest rates, new regulations making it harder to be #6 in a field (for example Fixed Income), too aggressive growth strategies in countries where the economy halted once the commodity cycle turned and the list goes on.

The Chinese banks are a chapter in itself, where valuations are looking extremely cheap. As mentioned in the previous post about average Price/Earnings ratios for different markets, the big Chinese banks drags down the average significantly for Hong Kong. This is more related to the huge distrust the market has in what the banks real default rates are and how much they actually will need to support all of these crazy lending activities that we all know has been going on for a long time.

So yes, a lot of Financials looks cheap on the surface, but there are huge problems underneath the surface. Add to that the margin pressure all over the banking industry, all the start-ups and solutions for payments, banking, trading and even robotic investment advice and the future looks rather bleak. In my portfolio my investment thesis has been in areas I see as the future of banking among retail. Avanza for the Nordic retail market in brokerage and Skandiabanken as the provider of a solid standard banking services online.

But I found another pocket of growth in the insurance industry in China. Which leads me to my latest investment

Ping An Insurance

The Chinese insurance stocks have been dragged down with the rest of the downturn for the Hang Seng Index, as well as the sell-off among banks like Standard Chartered and HSBC. They are also wrestling with low returns on their assets, which are meeting many very long-term liabilities. But the reason for me to invest is the long term growth prospects in the customer base of Chinese that will feel the need to take up health, car or life insurance over the coming years. Although many Chinese have a negative view towards insurance, this will be something they just need to do, as their wealth increases. I’m able to pick up Ping An at as I see it attractive levels, trading as a stock without growth prospects, although as I see it, there are great growth prospects. An in more detail analysis of Ping An will follow later.

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