China Insurers Jump in Hong Kong Amid Pension Fund Speculation

  • China Life Insurance had largest advance since August 2015
  • Five of seven biggest gainers on HSCEI are insurance stocks

Chinese stocks in Hong Kong posted their biggest gain in a month as insurers rallied.

The Hang Seng China Enterprises Index climbed 1.6 percent to 9,840.26 at close. Insurers accounted for five of the seven biggest gainers on the gauge, with China Life Insurance Co. having its largest one-day advance since August 2015. Analysts had a range of reasons for the sudden rally, from speculation Chinese pension funds are about to enter the stock market to bets higher borrowing costs would boost investment yields.

Investors have been waiting for the country’s local retirement savings managers to put their money into equities after policy makers announced rule changes in 2015. China last week raised the interest rates it charges in open-market operations and on funds lent via its Standing Lending Facility.

"H shares are rallying as investors are speculating that pension funds will be allowed to invest in the stock market soon," said Linus Yip, First Shanghai Securities strategist in Hong Kong. "It’s a big positive catalyst for insurers, who are managers of most of those funds, as they will be able to diversify their portfolios and investment yields will get boosted."

Chinese investors are returning from the week-long Lunar New Year holiday that ended on Feb. 2 after turnover on the nation’s exchanges slid Friday to the lowest for full-day trading since August 2014.

The Hang Seng Index rose 1 percent, while the Shanghai Composite Index added 0.5 percent. China Life surged 7.5 percent in Hong Kong, while New China Life Insurance Co. gained 6.8 percent.

Possible Inflows

The country’s pension fund managers have been handing over some of their cash to the National Council for Social Security Fund, which will oversee their investments in securities including equities. The pension system has long suffered low returns by limits on its investments to deposits and government bonds.

China’s 10-year sovereign bond yield was at 3.5 percent on Monday, matching its highest level this year. The central bank has been tightening cash supply since August to curb leverage in the financial system and support the exchange rate.

"The central bank’s rate hike moves have improved market confidence," said Jerry Li, analyst with China Merchants Securities Hong Kong. "The uptrend in government bond yields is beneficial to insurers as their valuations are based on assumptions of long-term investment yields."

  • Foreign investors bought a net 2.15 billion yuan ($313 million) of mainland shares through the trading link between Hong Kong and Shanghai exchanges, the most since August, according to data compiled by Bloomberg. Mainland investors bought a net 1.8 billion yuan of Hong Kong stocks via the link
  • Guangzhou Automobile Group Co. rose 8.9% in Hong Kong, the biggest one-day gain since Sept. 30, 2015, as sales beat expectations
  • Toread Holdings Group Co. slumped by 9.8% in Shenzhen after it decided to terminate a planned acquisition
  • Agricultural stocks, including Liaoning Wellhope Agri-Tech JSC Ltd. and Shandong Denghai Seeds Co., rallied after China released a rural policy document to promote development in the sector

— With assistance by Amanda Wang, and Kana Nishizawa

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