. Insurance funds frequently raise the market's attention in
In 2019, the pace of insurance funds holding quotations has significantly accelerated. It has raised quotations 7 times in total, with a total cost of 13 billion yuan, involving 6 listed entities, of which 4 of which were held were H shares . Since the beginning of this year, insurance companies have mainly held quotations by China Life Insurance and Ping An. Ping An Life Insurance , China Fortune Land Development and China Jinmao , China Life Insurance has successively held quotations by China General Nuclear Power H shares, second time quotations by Wanda Information , and quotations by China Taiping H shares. The methods of holding quotations are relatively diversified, covering bidding transactions, bulk transactions, agreement transfers, targeted share issuances, subscription of private placements, etc., and the targets are mostly high dividends, stable profits and low valuations. The main source of insurance funds is the insurance liability reserves for own funds, traditional insurance and dividend insurance, and the purpose of holding quotations is mainly long-term financial investment.
. Alleviate the impact of large profit fluctuations under the new standards
.1 Reclassification of financial assets to increase profit volatility
IFRS9 Under the new accounting standards, insurance companies' financial assets are facing reclassification, and they are currently calculating and responding to changes brought about by the new standards, and long-term equity investment is still an effective response measure. Under the old standards, financial assets adopt a four-classification method, where available-for-sale financial assets are measured at fair value at the end of the period. Changes in fair value are recorded in other comprehensive income and reflected in the capital reserves, which have no impact on the profit statement, and the capital gains obtained during disposal contribute to profits; while the fair value changes of trading financial assets must be reflected in profits, and the price fluctuations of such assets will cause profit fluctuations. Therefore, companies hope to divide financial assets into available-for-sale financial assets rather than transactional financial assets to reduce the impact of market price fluctuations in financial assets on current profits. When profits need to be released, profits are adjusted through the disposal profits and losses of available-for-sale financial assets to smooth out profits. At present, among the financial assets of major insurance companies in my country, the proportion of available-for-sale financial assets is significantly higher than that of trading financial assets. Under the new
guidelines, a large number of available-for-sale financial assets are reclassified to FVTPL. Taking Ping An as an example, 378.43 billion of the 692.38 billion FVTPL after adopting the new standard was reclassified from available-for-sale financial assets, accounting for 54.5%, and most of them are equity investments. Under the new standard, the total assets of FVTPL reached 824.94 billion in 2018, an increase of 484% compared with 141.25 billion in 2017, and more than 80% are equity investments. The increase in FVTPL assets has increased the volatility of profits. According to Ping An data, a change in the yield of equity investments of 1% can lead to a change of current profit of 4.12%, while the sensitivity of profit changes under the old standards is only 0.57%.
.2 Use long-term equity investment to calculate smooth profits
.2.1 Accounting scope of long-term equity investment
Long-term equity investment refers to equity investment in subsidiaries, joint ventures and associates. Its purpose is to hold shares of the invested unit for a long time, become shareholders of the invested unit, and to control or exert significant influence on the invested unit through the shares held, or to improve and consolidate trade relations, or to hold long-term equity investments that are difficult to realize. Except for stock investment, long-term equity investments are usually not allowed to be sold at any time. Once an investing enterprise becomes a shareholder of the invested unit, it enjoys the rights of shareholders and assumes corresponding obligations based on the shares it holds. Under normal circumstances, the investment cannot be withdrawn at will. The specific method of accounting is the focus of defining the degree of impact.
control means having the power to the investee, enjoying variable returns by participating in related activities of the investee, and being able to use the power to affect the return amount on the investee.
jointly control means that the control shared by a certain arrangement in accordance with relevant agreements, and the relevant activities of the arrangement must be made before they can be made after unanimously agreed by the participants who share control rights.
The significant impact of means that the Group has the power to participate in decision-making over the financial and operating policies of the invested units, but it cannot control or jointly control the formulation of these policies with other parties.When determining whether it can exert a significant impact on the invested unit, consider potential voting factors such as current convertible corporate bonds and current executable warrants held by the investor and other parties.
.2.2 Calculation method of long-term equity investment
According to the provisions of "Enterprise Accounting Standards No. 2 - Long-term Equity Investment", long-term equity investment is calculated using the cost method or the equity method .
Therefore, long-term equity investment asset book value is not affected by fair value fluctuations. Increasing long-term equity investment can effectively weaken the impact of fair value fluctuations in equity assets on profits and hedge the impact of I9 implementation. Moreover, when the invested company realizes profits or distributes dividends, it directly affects the investment income and thus affects the profits. As long as the invested company achieves stable profits or stable dividends every year, it can make a stable contribution to the company's profits.
. Long-term interest rates are down, pursuing stable returns that exceed fixed income
Since the financial crisis in 2008, some central banks, including the European Central Bank and Bank of Japan , have significantly lowered the benchmark interest rate, and even implemented a negative interest rate policy. Against this background, there are fewer and fewer products with stable yields and low risks in the market, and fixed returns are declining, and the advantages of high returns and strong security in the bond market no longer exist.
my country's treasury bond yields are currently in a downward cycle, and insurance companies must broaden their investment channels and allocate more high-yield equity assets. In addition, because insurance companies cannot bear the excessive risk of stock price fluctuations, the increase in holdings reached a significant impact. At the end of the year, they shared the operating results of listed companies and obtained stable returns that exceeded fixed income. It can be seen that in a low interest rate environment, insurance companies have the motivation to increase asset-side returns by raising their shares.
Take the United States as an example. Since 1975, the US life insurance industry has basically been in a low interest rate environment. Its real interest rates and 10-year treasury yields showed significant declines in the early 20th century and in the two periods after the 2008 international financial crisis. Affected by this, the investment yield of US life insurance funds continued to decline. In recent years, the allocation ratio of company stocks in major asset allocations in the US life insurance industry has increased significantly, seeking higher returns.
Japan lowered its policy interest rate level to zero more than 20 years ago, and is the first country to implement a monetary policy zero interest rate. Against the backdrop of downward interest rates, Japan's dividend yield has been relatively higher than bond yields, and investors are increasingly allocating their assets to high-dividend stocks to earn dividend yields.
In 2018, a total of 895 A-share listed companies had dividend yields exceeding one-year bank fixed deposit rate of 1.5%, 370 listed companies had dividend yields of more than 3%, and 13 listed companies had dividend yields of more than 10%. Among them, there are the largest number of high dividend yield listed companies from the real estate, chemical and automotive industries, each with more than 30 listed companies with dividend yields exceeding 3% in 2018.
Nowadays, major countries around the world are gradually following Japan's footsteps in terms of economic growth and interest rate trends. The dividend yields are significantly higher than the 10-year treasury bond yield. Insurance funds will raising high-dividend stocks to become the general trend.
. High dividends and low valuations are reasons to buy
Take the listed companies that were entitled by insurance funds in 2019 as an example. Most of them are targets with good profitability and high dividend yield. China Fortune Land Development, China Taiping Insurance , China General Nuclear Power , and China Jinmao's average ROE in 2018 were both double digits. The dividend yield except Wanda Information is lower, and the other targets are above 3%, which is 2.3% higher than the average Shanghai Stock Exchange A-shares.
In addition, insurance funds have obviously had a certain preference for Hong Kong stocks since 2019, and the targets they selected are basically stocks with relatively high premium rates of AH shares. China Taiping is 30%, China General Nuclear Power and Shenwan Hongyuan have reached more than 140%. The price of H shares is relatively low, and high cost-effectiveness has become an important reason to buy. It is expected that the valuation of H shares will be repaired to a certain extent in the future.
, select individual stock targets
detailed sorting out the logic and ideas of insurance funds raising quotations. In view of the current market asset quality, analysts from various industries of CICC Research Institute systematically sorted out the "core assets" that insurance funds focus on. The specific individual stocks are summarized as follows .
This article is from CITIC Construction Investment
For more exciting information, please come to the Financial World website (www.jrj.com.cn)
