On Tuesday, August 6th, Hong Kong-listed insurance stocks experienced a sharp sell-off across the board. AIA Group Ltd saw its shares drop 5.92% for the day, Prudential Plc fell 4.57%, and HSBC Holdings Plc, the parent of HSBC Life, also declined by 1.23%.
According to recent reports, a message circulating on social media suggests that some Hong Kong insurance policyholders have received tax notices regarding their overseas income, with Hong Kong insurance returns being included in the taxable scope. While multiple sources indicate that there have indeed been cases of such taxation in certain provinces and cities, the practice is not yet widespread.
In recent years, a growing number of mainland Chinese residents have been purchasing insurance policies in Hong Kong, largely drawn by the higher expected returns offered by Hong Kong insurance products. It is understood that the expected long-term annualized returns on Hong Kong savings-linked insurance products can reach 5% to 6%, and some products may offer even higher yields. In comparison, similar products available in mainland China do not offer such competitive returns. Additionally, Hong Kong insurance companies have a broader investment scope, allowing them to allocate funds to global equities, bonds, real estate, and other diversified assets. This strategy theoretically enables them to capture more growth opportunities and achieve superior returns.
Clearly, the news regarding potential taxation will likely diminish the appeal of Hong Kong insurance products compared to their mainland counterparts, thereby putting pressure on sales. Notably, just two days prior, Goldman Sachs released a research report lowering its expectations for AIA Group's new business growth in the second quarter. Goldman Sachs now forecasts that AIA's new business value for the first half of the year will increase by 15% year-on-year on a constant exchange rate basis, reaching $3.254 billion. However, the growth rate for the second quarter is expected to moderate to 12%, down from 17% in the first quarter. Goldman Sachs attributed this downgrade to the high base effect in the Hong Kong market, rather than any slowdown in sales activity.
AIA Group is expected to announce its second-quarter and first-half results on August 20th. Goldman Sachs anticipates that investors will be closely watching the growth momentum of sales in Hong Kong, as well as developments in the mainland Chinese market. In its first-quarter results released on April 30th, AIA reported that its Hong Kong business achieved new business growth of 21%, driven by both local Hong Kong customers and visitors from mainland China.
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