Just as US and European banks diligently invest overseas to tap emerging markets growth, so the targets of their attention are busily funnelling money back into, well, cheap developed markets.
The latest example is China's Ping An Insurance, which is 17 per cent owned by HSBC. Based in the border boom town of Shenzhen, PingAn is paying €1.8bn for a 4.2 per cent stake in Fortis. Since the Dutch-Belgian financial services company 's shares are down 33 per cent year to date, while Ping An‘s Hong Kong-listed shares have almost doubled during the same period, the maths stacks up nicely. Ping An paid an average €19.05 per share, or seven times this year's earnings and two times book value. Even before Thursday's 5.2 per cent rise in its stock price, Ping An was trading on 34 times this year's forecast earnings and 12 times book. But that is not all. Ping An gets a hard currency investment (more than can be said for dollar assets these days), a 7.7 per cent dividend yield and some global credentials.
Fortis must be feeling a little smug too. Barclays, defeated by Fortis and its consortium in the battle for ABN Amro, brought deep-pocketed Chinese investors on board for added funding firepower. It will reassure Fortis to know that, should things turn ugly, it has a similarly endowed shareholder on board. Neither party, however, seems to expect much by way of strategic benefits. Just as well. Fortis already has a stake in China's Taiping Life (insurance) as well as an asset management firm, while Ping An has its link to HSBC. If, then, the deal is essentially a portfolio one, it veers towards the bold. Chinese entities are restricted in the amount they can invest offshore. Ping An received an additional quota for the Fortis deal, but even adjusting for this it has over one-third of its total overseas investment portfolio tied up in a single name. The average chief investment officer of an insurance company would surely prefer a little more diversification.