Investors are abandoning bets that Ping An Insurance will fall even as HSBC Holdings considers selling its stake in China's second-biggest insurer.
The ratio of outstanding puts to sell Ping An versus calls to buy slipped to 1.15 to 1 on Friday and reached 1.11 on Thursday, the lowest since August 2007, according to data compiled by Bloomberg. The stock has gained 15 per cent this year, although it is down 1.6 per cent since HSBC said last month that it was in talks to sell a 15.6 per cent stake. Investors are betting the options are cheap and that the world's third-largest insurer has enough revenue sources that it is shielded from weakness in any one of them, said Alex Wong, a director at Ample Capital. HSBC is likely to make its decision on Ping An soon, and once that uncertainty is removed, the stock will rally, he said.
"Ping An is a diversified play," Mr Wong said on Thursday. "It has a securities firm, asset management and insurance and banking arms. Its call option is not expensive and it limits your risk."
Thailand's Charoen Pokphand Group is offering to buy HSBC's stake for HK$74 billion, the Shanghai Securities News reported last month, citing a person it did not identify. The shares, which closed at HK$58.65 on Friday, started trading at HK$10.33 in June 2004.
Shenzhen-based Ping An said in October that third-quarter net income rose 21 per cent as its banking operations contributed more and premium revenue expanded.
Investment income rose 9.7 per cent to 4.25 billion yuan, and profit at Ping An Bank rose 18 per cent to 3.48bn yuan, the company said in October.
"Valuation is getting more attractive," said Steven Leung, a Hong Kong-based institutional sales director at UOB Kay Hian. "Shares fell from the potential selling by HSBC but the market is starting to realise that won't affect the fundamentals of Ping An. Once the transaction is complete … the share price will rebound."