Monday was a rocky day for Prudential (LSE: PRU). Its share price ended the day as the biggest loser, with an 8% fall. Still, as I write on Tuesday morning, Pru shares are back up a couple of percent.
Part of Monday’s turmoil was driven by Asian market falls, on the back of commodity weakness. The Chinese government says it will act to keep commodity prices in check, and that didn’t thrill many investors. What a day then for Prudential to announce a big move into Hong Kong.
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The Pru revealed its plan to raise up to £2bn in a new Hong Kong listing. The listing will amount to up to 5% of the company’s issued share capital. It comes just a week after Prudential reported the completion of the demerger of its US business Jackson Financial. Putting the two together, it really does make it clear that the firm’s focus is shifting eastwards.
Judging by the Prudential share price response, the market’s big investors don’t much like the idea. I can understand that. Pru shares form a safe cornerstone of many an institutional portfolio. They’re boring, but dependable and safe. Oh, did I mention safe? And now the firm’s gone and done something innovative, exciting, possibly even risky. For sure, that’s added uncertainty to the mix.
What do I think? I reckon it could turn out to be a very smart move. The Chinese sphere forms part of the world that’s rapidly growing in affluence. People there are increasingly demanding financial products such as insurance and investment. And those Chinese live longer than western customers, don’t they? That means there’s potential for more years of life insurance premiums.
Would I buy? I’ve often come close, but never quite done it. I almost always have an insurer in my portfolio, as I like the sector’s long-term outlook. In the past, I’ve held RSA Insurance Group, for example. And, right now, I’ve some Aviva shares.
Insurance sector share prices can be volatile, but I’ve had some very nice dividend streams over the years.
Prudential share price valuation
I’ve often been put off by Pru’s relatively high valuation and relatively low dividend yield. The other side of that coin is that the company’s careful style of management has often led to stronger share price performance than the competition. There’s nothing wrong with that, but it hasn’t really fitted in with the income I’ve been looking for.
So what about Prudential now, with the uncertainty surrounding its Chinese move? I’d say there’s a risk that traditional Prudential investors will shy away from the company now. So I reckon we could see some share price weakness over the next year or two.
But I like the move into the Chinese market. It’s got to be one of the best ways of looking to expand the business in the decades ahead. Prudential is definitely on my list of candidates. And I might finally buy some.