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Can Le Pru prove that Cathie Wood and George Soros are wrong about China?

 


Updates on Chinese Business and Finance

There can’t be many things that would unite star investors George Soros, a liberal-minded billionaire who survived the Nazi occupation of Hungary, and Cathie Wood, the patron saint of Ark Invest, who backs Trump. and Redditor.

But Xi Jinping did. Soros and Wood both warned last week of the sweeping changes the Chinese president is making as he implements a series of policies to curb capitalist profits and bolster social justice.

Wood said Ark had reduced his investments in China “dramatically”. Soros described the investment there as a “tragic error”.

The timing of Prudential’s pivot to Greater China and Asia is therefore interesting. The UK-based insurance group completes the second stage of its dismantling on Monday. After splitting from his UK asset manager M&G two years ago, he has done the same with his US company Jackson.

Pru, as a result, has become another example – alongside HSBC and Standard Chartered – of a UK-anchored financial services group that primarily depends on its Asian operations for growth and profitability, with China being more and more the engine. In the first half of the year, nearly a third of $ 2 billion from the group of current operating profits come from Greater China.

Will it deal more easily than banks with the tensions of being based in the west and centered in the east?

While HSBC and StanChart have powerful growth engines in emerging markets in Asia and elsewhere, they have underperformed their global peers, especially in recent months as China cracked down on free enterprise and that the Covid restrictions have hampered the movement of people in the Region.

As banks, headquartered and chief executives based in London, they are seen as particularly vulnerable to extreme geopolitical tensions between China and the West. Both banks have seen share price growth of nearly 15% over the past year, but this has been eclipsed by both their global peers and top Asian local specialists. The MSCI Global Banks index is up 41%.

The Pru didn’t necessarily plan to follow the HSBC / StanChart playbook. Although he has strategically focused on growth in Asia for years – particularly under former chief executive Tidjane Thiam and more recently under Mike Wells – the removal of large non-Asian parts of the group only came after significant investor pressure, most recently led by Daniel Loeb’s Third Point hedge fund.

Since this campaign began 18 months ago, stocks have jumped 50%, although the stock’s benchmark outperformance has been more modest, especially recently, and Hong Kong-based rival AIA remains. most highly rated.

Part of this discount is surely due to the awkwardness of his installation in front of Janus. In addition to the tensions that banks have to face, Pru has a staggered shareholder structure: less than 10% of investors are in Asia; 40 percent are still in Europe, mainly the UK. A small capital increase planned to strengthen the balance sheet is unlikely to change the balance significantly.

Other uncertainties remain. What, for example, will Xi’s shift towards social justice mean for insurers, especially those with foreign capital? The demand for health and protection products is certainly booming as incomes rise and the Pru seems confident that it will continue to find political favor. But could profit margins be under pressure?

And what about the quasi-colonial management system? As a senior HSBC official, whose chairman, managing director and global headquarters are still based in London, advised the newly refocused Pru: “Asia is vibrant. Absorb Asia. Don’t be an observer.

The insurance group insists there are no plans to move its London home to Hong Kong. But already, despite the intimidating geopolitical climate, it is adopting its new orientation towards Asia.

Since Shriti Vadera took over the presidency in January, she has appointed three new non-executives from Asia to the board. The head office function tally now performed outside of Asia has climbed to 60% and will increase after Jackson.

Vadera herself, born in Uganda of Indian parents, is the archetypal global citizen and may choose to settle in Hong Kong once circumstances permit, friends say. And if Wells steps down as chief executive next year, as some predict, his replacement could also be based in the region. It will be up to investors to decide whether the greater coherence that could outweigh the political risk of a stronger link with China.

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