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By Chris Aylott

Macroeconomic headwinds have chilled DBS Group’s forecast for the Chinese insurance market, but underdog Ping An (OTCPK:PNGAY) may be a good buy for adventurous investors.

Analyst Ping Cheng has assigned a “neutral” rating to the sector, citing China’s high benchmark interest rate and an underwhelming equity market. Cheng projects low double-digit growth for insurance in 2012, which would be good news anywhere but China.

Cheng says life insurance lost its growth engine when regulatory changes affected insurers’ use of Chinese banks as a distribution platform. “Bancassurance” contributed 80% of China Life (LFC) and China Pacific’s new business in 2010.

Insurers are building an agency-based sales channel, but so far this only offsets some of the volume loss from banks. Recruiting agents is difficult in China’s busy job market, and insurers are still mastering the operational systems needed for high agent productivity.

Cheng identifies Ping An Insurance as “ahead of the competition” in transitioning to agency distribution and integrated systems. Ping An is Cheng’s top pick, with a projected 23% upside.

Ping An is mostly traded in Hong Kong — PNGAY is not always going to be extremely liquid.

But since it is not a major component of Global X’s China Financials ETF (CHIX), U.S. investors looking for a toehold in the Chinese insurance market may want to look at these over-the-counter shares after all.

Source: DBS Finds Few Winners In Chinese Insurance Market