Are insurance funds copying everyone's "bottom"?

At a relatively low level in the A-share market, the actions of insurance funds are becoming more prominent.

Recently, China Pacific Insurance Group Co., Ltd. (referred to as "CPIC" below), announced that it has acquired stakes in two H-share companies.

CPIC's announcement stated that due to its holding subsidiary's purchase of H-shares of Huadian Power International and Huaneng Power International on July 30, 2024, and the total shareholding proportion of Huadian Power International and Huaneng Power International H-shares held by CPIC and some of its holding subsidiaries reaching 5%, triggering the acquisition of the two companies.

This marks at least the eighth and ninth listed companies that insurance funds have acquired stakes in this year, indicating a clear bottom-fishing attitude towards assets of mainland listed companies.

Method: Purchasing through the Hong Kong Stock Connect

According to the China Insurance Industry Information Disclosure System, CPIC recently purchased H-shares of Huadian Power International and Huaneng Power International through its holding subsidiary on July 30, 2024, through the Hong Kong Stock Connect.

Due to the transactions on the aforementioned date, CPIC triggered the acquisition threshold (holding proportion above 5%).

It is worth noting that the announcement revealed two key points about the purchases:

1. Purchased through the Hong Kong Stock Connect (without using QDII quota);

2. All purchases were H-shares.

Target: Power Stocks

Announcement Information: CPIC purchased H-shares of Huadian Power International and Huaneng Power International on the same trading day (July 30).

The trend of H-shares on that day showed that the related stocks were in a declining state, and CPIC was absorbing them on dips.

CPIC's targets this time are both power generation companies, more precisely, undervalued and high dividend-yielding thermal power generation companies.

According to data from Tonghuashun, the latest P/E ratio of Huadian Power International H-shares is 8.08 times, and that of Huaneng Power International H-shares is only 6.75 times.

Funds: Two Sources

This announcement also disclosed a crucial piece of information: the funds for this acquisition of H-shares come from two sources.

First, CPIC's own funds.

Second, insurance liability reserve funds.

Among them, the account products of insurance liability reserve funds are the core source of funds for this acquisition of the two power companies.

CPIC, the acquirer in this case, is a leading insurance group in China. As of the end of the first quarter of 2024, CPIC's total assets amounted to as high as 2.44 trillion yuan, with net assets of approximately 276.271 billion yuan. By the end of 2023, this insurance company's comprehensive solvency adequacy ratio was 257% During the same period, CPIC's equity assets had a book balance of 13.256 billion yuan, accounting for 9.15% of the company's total assets during the same period.

Peers: Also Rushing to Buy Similar Stocks

In fact, CPIC's peers (other insurance institutions) are also actively buying similar undervalued, high dividend stocks.

Less than ten days before CPIC's stake acquisition, Ping An had just "staked" H shares of Industrial and Commercial Bank of China, with the stake in H shares rising to over 15%, while ICBC's latest price-to-earnings ratio (TTM) is only 4.04 times.

Earlier, Rui Zhong Life Insurance staked Longyuan Power's H shares, Changcheng Life Insurance staked Ganyue Expressway, Wuxi Bank, Chengdu Environment, and Jiangnan Water; while Zijin Property Insurance staked Huaguang Energy.

Overall, utilities (power generation, water services), finance, and expressway stocks are the most favored.

Among stocks of the same company, H shares are also more favored than A shares.

Various signs indicate that insurance funds may indeed pay more attention to equity assets with high dividends