Securities companies eyeing China Life A-shares

China Life Insurance is very likely to see its A-shares surge in coming years, according to a report from the China Merchants Securities Company on Tuesday.

The largest life insurer in China has priced its domestic initial public offering (IPO) for 1.5 billion A-shares on the Shanghai Stock Exchange at the range of 18.16 to 18.88 yuan.

China Merchants Securities, a major security company, predicted the China Life A-shares scheduled for listing on Jan. 9 would surge to 35 yuan within a year and top 90 yuan within three years.

The projections were based on the company's rising returns on investments. Previously, insurance funds in China could only be invested in less risky treasury bonds or long-term bonds or be stashed in banks for meager interest.

Since the government has allowed insurance funds to branch into the stock markets, which have turned bullish after five years of stagnancy, the insurance sector is expected to achieve higher yields.

The average return on investment of China's insurance funds is only three to four percent. The report contends that the figure could grow to eight percent in one year and 20 percent in three years.

Industry insiders are optimistic about China Life's latest public offering, as the country's life insurance market is forecast to grow 15 percent a year over the next five years.

China Life, already listed on the New York and Hong Kong stock exchanges, accounts for half of the market share.

Flush with cash, it has been diversifying its investment portfolios with major purchases. It has spent 35 billion yuan (4.49 billion U.S. dollars) to buy 32 percent of the Guangdong-based China Southern Power Grid, shortly after buying a 20-percent stake in the Guangzhou Development Bank.

China Life chief investment officer Liu Lefei said the company had been allowed to invest abroad and had a quota of 1.4 billion US dollars.

He told the China Business News on Tuesday that China Life planed to branch out into trust and fund industries in 2007 by acquiring controlling shares of existing firms.

"In the first phase, China Life's overseas practices will focus on the H-shares with which it is familiar," Liu was quoted as saying.

China Life used to make overseas investments with special approval from the authority, including subscriptions for H-shares from IPOs of China Construction Bank (CCB, 0939.HK), the Bank of China (BOC, 3988.HK) and the Industrial and Commercial Bank of China (ICBC, 1398.HK).

Source: Xinhua