Money

Ping An says more rate hikes likely this year

By Kelvin Soh (China Daily)
Updated: 2011-04-14 13:10
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HONG KONG - Ping An of China expects interest rates and bank reserve ratios to be hiked at least once more this year, a move that may potentially benefit the company's earnings, a senior executive said on Wednesday.

Yields in the bond market in China have also reflected the possibility of more rate hikes, said Timothy Chan, chief executive of the asset management arm of Ping An, with more than $100 billion in assets under management.

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"We may have one more reserve requirement ratio hike or even an interest rate hike," Chan said. "For us, this is a good time to accumulate."

Insurance companies profit from the difference between their investment returns and their liability to customers, known as the spread. The spread typically widens when interest rates rise because it leads to higher bond yields, which attract investments from many companies in the sector.

China has raised interest rates twice so far this year as it intensifies its fight against stubbornly high inflation and tries to cool its red-hot real estate sector.

Chan was speaking before an event to launch a yuan-denominated fund in Hong Kong, which the company said is seeking to raise up to 600 million yuan ($92 million) to invest in the nascent "dim sum" bond market.

Ping An will also likely keep its asset allocation strategy this year largely similar to 2010 as it eyes better returns from the rising bond yields, with about 80 percent of its assets in fixed income tools.

The company is also looking to banking and consumption stocks to invest in the equities market in China, and is especially interested in companies that offer high dividend yields of more than 4 percent, Chan said.

"In traditional life insurance policies, the liability period is usually more than 20 years, which means we must invest in long-term paper," he said.

Reuters

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