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A few weeks ago I did a piece on how a large proportion of "profits" at mainland Chinese companies were in fact due to speculation on stock prices [How Much of China's "Earnings" are from Operations]

Found this interesting Bloomberg piece about how China Life (LFC), one of the largest companies in the country, is getting frankly a bit sick with the rollercoaster that is Chinese equities. The funny thing is when stocks were going up 100% in a year it was not an issue, but now after a recent 200% gain, a 20% drop makes them take the high road and away from those stinky stocks that dare to go down. (a new concept to investors in China apparently). On a more serious note, this could be an interesting foreshadow of things to come, and in the long run, I have a feeling that this is going to save China Life a lot of pain down the road when the inevtible house of cards that is the Shanghai market collapses on itself. (again note I am not saying the Chinese economy, just the domestic A share market)

  • China Life Insurance Co., with about $26 billion of assets under management, will trim share investments to reduce risk after the stock market tumbled 20 percent since tripling in the first 10 months of the year.
  • ``Other Chinese insurers may be happy living with rollercoaster ups and downs in their performance, but China Life will not be,'' President Wan Feng said at a presentation in Nanjing, a city on the Yangtze River northwest of Shanghai, today. ``For us, stability is key.''
  • The company will cut its investments in stocks and mutual funds, and aims for strategic equity stakes to make up 5 percent to 10 percent of its portfolio, Chief Investment Officer Liu Lefei said. China Life will look for infrastructure and financial acquisitions, he said.
  • The world's largest insurer by market value joined investor Warren Buffett and former Federal Reserve Chairman Alan Greenspan in casting doubt on the sustainability of China's stock market rally. The nation's stocks, on average, remain the most expensive among the world's largest markets even after the key CSI 300 Index slumped from October's peak.
  • ``China Life will still be earning money even if the stock market tanks to 2000 points,'' said Yang today. ``We bought into the stocks very early at cheap prices.''
  • China's insurance regulator wants firms to spread risk on their more than $300 billion of assets. In July, China allowed the nation's insurers to invest 15 percent of their assets in overseas stocks and bonds, up from 5 percent.
  • China Life has more than $1 billion in Hong Kong stocks among its 194 billion ($26 billion) of total assets under management.
  • The company is ``very interested'' in buying foreign banks, Board Secretary Liu Ting said at the presentation. ``Overseas banks are looking very attractive after the subprime crisis brought their share prices down,'' said Liu Ting on the sidelines of today's briefing. ``This provides great opportunities for China Life and is a very worthwhile option for us to consider.'' (rut roh Raggy)

Long valuing companies on actual operations, not how good they are at speculating on stocks

Source: China Life Moving Away from Chinese Equities