Strong investment returns may not fully
translate into earnings recovery in 1H09
􀀗 Extent of gains realised in 1H08 could
make comparisons disappointing
􀀗 China Life and Ping An are not A-share
proxies. We remain biased to the
downside
HSBC forecasts for 1H09 show an investment-led
recovery. We set out our forecasts for 1H09. The main
contributor to earnings recovery is investment gains.
We stay biased to the downside ahead of the results.
Large realised gains in 1H08 masked extent of equity losses
and could mean that, despite the rally in the A-share market,
earnings comparisons are likely to disappoint. We think the
earnings recovery will be more apparent in 2H09.
We do not believe China Life, PICC and Ping An are
good A-share proxies. Investors who have played these
stocks as capturing the A-share rally could be disappointed,
though we acknowledge the scope insurers have to smooth
results, particularly at the interim stage.
Reduced sales of single premium investment business will
likely curtail premium growth for China Life and China
Pacific. Ping An and CIIH have more robust regular premium
sales, which have been the driver of revenue growth.
Much improved p&c business. On the back of sharply
rising car sales, auto business has been the main premium
growth driver for p&c business, while lower catastrophe
losses have led to improved earnings.