Asia is not for the faint-hearted.
That’s the conclusion I drew from learning that Standard Chartered Bank, an Asia-focused lender, will close its global equities business and axe 4,000 jobs by the end of the year. It is exiting the equity capital markets business completely, and the brunt of job losses will be felt in Asia.
Standard Chartered Bank can trace its history back to the mid-19th century. It played a major role in the expansion of trade with Asia following the opening of the Suez Canal in 1869 and the extension of the telegraph to China in 1871.
For it to pull out now signals a serious lack of faith in Asia’s future prospects.
I leave it to the management and major shareholders to answer whether it is a sensible decision.
What I do know though is that it’s risky to doubt Asia’s long-term prospects. Ping An Insurance Group offers a valuable lesson in this regard.
The deal HSBC wishes it could forget
Listed in 2004, Ping An Insurance Group is China’s second-largest insurer. Long-time readers might recall me writing about it back in 2012.
In early December 2012, Dhanin Cheravonon – Thailand’s richest man – bought HSBC’s 15.6% stake in Ping An Insurance.
HSBC had spent years building up the stake, and the sale was prompted by the bank’s three-year recovery plan following the 2008 financial crisis. They were selling to ensure their long-term survival.
But was it worth it?
Since the announcement, Ping An’s share price is up 44.3%, while HSBC’s is down 9.7%.
That’s the price you pay for betting against Asian stocks.
The good news for us is that I believe there’s still more to gain from Ping An – and I’ve got three reasons why now is the time to buy.
The richest man in China is backing Ping An
Last December, the founders of internet giants Alibaba Group Holdings Ltd and Tencent were among a group of investors who acquired stakes in Ping An.
The Ping An deal was the second time the three parties collaborated. In 2013, they also set up Zhong An Online Property Insurance, China’s first online insurance seller.
The three founders are commonly referred to as ‘the three Mas’ – Jack Ma, (Alibaba’s executive chairman), Tony Ma (Tencent’s chairman) and Ma Mingzhe (Ping An’s chairman).
For Ping An to be getting attention from these gentlemen is very encouraging. But they’re not the sole factor why the future looks bright for Ping An.
China’s central bank has given Ping An a big boost
On 5 January, China’s central bank, The People’s Bank of China, gave eight private companies preliminary permission to launch a business focused on individual and company credit information.
Among them were subsidiaries of Ping An, Tencent and Ant Financial Services Group (an affiliate of Alibaba controlled by Jack Ma).
While it does not guarantee that all companies will receive final permission, this move could be a game changer for the industry – and for Ping An.
Currently the central bank provides basic information about borrowers’ credit history. But if these internet companies are allowed to change the system, they could allow additional insight into how likely people are to default on loans.
It would boost Ping An’s ability to analyse client’s wealth, risk appetite, price sensitivity, social network and devise better marketing and product strategy.
Now let’s look at the final reason why Ping An should do well.
Asia’s GWP is set to overtake the US
For the first time in history, Asia’s total gross written premium (GWP) – the total premium written and assumed by an insurer before deductions for reinsurance and ceding commissions – is projected to exceed that of the US at $576.bn.
As expected, China will account for 38% of Asia’s total GWP, up from 33% in 2013.
Ping An has been doing well over the last few years. But the big question is: can they maintain this momentum?
A fantastic opportunity
Ping An’s five-year plan certainly includes some ambitious targets. Whether these are realistic or not is hard to say.
However, Ping An Insurance’s GWP and annualised new premium growth trajectory has been the steadiest among key Asian life insurers, so I’m inclined to believe in them.
China has a reputation for misallocating capital and resources, but I regard Ping An Insurance as being part of the solution rather than the problem. When some of Asia’s leading investors are putting their own monies into the stock, it is tough to be bearish about its long-term growth prospects.