While the recent turmoil in many emerging markets had been detrimental to stocks the world over, it has also created a great long-term buying opportunity as well. Nowhere is this more the case than in the dynamic Chinese market. Chinese stocks have been slumping as of late thanks to fears earlier in the year over a rate hike and a subsequent cooling down period for the economy. Yet, just when most Chinese companies appeared to have shaken this negativity, the crisis in the Middle East began, once again sending demand for equities plummeting.
While obviously a negative in the short-term, investors with capital ready to be deployed are left with a multitude of choices in the market. One particularly attractive firm is China Life Insurance available via ADR under the ticker LFC.
The company has posted truly impressive growth rates as of late; revenues have surged from just over 166 billion yuan in 2008 to 371 billion yuan over the trailing twelve months while net income before taxes has almost doubled in the same time frame. Nevertheless, the company remains marred in a downtrend; shares are just a few dollars above the company’s 52 week low of $55.47, and a double digit loss in percentage terms when compared to its price a year ago.
Such a situation, in which LFC’s economic position has improved dramatically but its stock price has tanked, could make for an excellent opportunity for investors seeking to get in on the Chinese life insurance market. More than anything it seems as though LFC’s strong performance has been overshadowed by geopolitical factors both in its home country and abroad. One has to wonder if oil prices were not spiking and if investors were not fleeing emerging markets in droves if this opportunity would still be available, suggesting that time is probably of the essence for this particular investment thesis.
While it is true that the company already maintains a dominant position in the Chinese life insurance market—it has just over 40% of the market share—the fact remains that there are still millions of people in the country without not only LFC’s products, but life insurance or annuities in general. As China continues to industrialize the market will only expand; as more people reach the middle class they will have assets worth protecting or have the possibility of having a comfortable retirement. Either of these scenarios are merely dreams to millions of people in the country but if China can keep up its impressive growth rates, LFC’s market will increase dramatically as well, spurring the company to solid growth levels for the foreseeable future .
For these reasons, LFC appears to be a solid long term pick for investors willing to wait out any volatility in the short-term. The company has a solid dividend yield as well, coming in at just over 2.4% suggesting that even if the market remains in the doldrums investors will be rewarded for their patience with this solid payout. This yield is especially impressive for a company that has pretty much doubled earnings in the past two years and hasn’t seen its stock price move to the upside at all.
Add to the mix that the company is in the world’s premier emerging market and some patient investors could have a long-term winner on their hands. The one caveat is that investors must be willing to stomach some geopolitical turmoil over the next few months and the possibility of lackluster emerging market demand which could keep prices depressed until cooler heads prevail.
Once this happens, expect a flood of money to once again return to the promising markets of the rapidly industrializing countries around the globe, finally boosting prices for undervalued life insurance giant of China, LFC.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.