Investors yesterday expressed concern over continued market volatility eroding Cathay Financial Holding Co’s (國泰金控) profits, given its huge position in local shares.
The nation’s largest financial service provider by assets said unrealized gains from investments on financial assets stood at NT$28.4 billion (US$891.12 million at current exchange rates) as of last quarter, reversing losses of NT$3.9 billion a year earlier, despite market volatility.
“We are not worried about short-term market volatility, since share prices go up and down daily... Instead, market corrections present an opportunity for further investment,” said Lin Chao-ting (林昭廷), an executive vice president at Cathay Life Insurance Co (國泰人壽), the flagship unit of Cathay Financial.
Lin made the comment after institutional investors asked during an investors’ conference in Taipei if the insurer incurred losses of NT$2 billion this month due to the ongoing corrections in the TAIEX.
The local bourse shed 3.1 percent, or 286.4 points, after Republican candidate Donald Trump won the US presidential race on Tuesday last week, while foreign institutional players oversold NT$67.73 billion worth of Taiwanese shares, according to Taiwan Stock Exchange data.
Lin declined to provide up-to-date securities figures, saying that the company has to comply with the “quiet period” requirements ahead of a capital increase plan.
Cathay Financial is issuing 833.3 million special shares at NT$60 each to raise NT$50 billion to boost its life insurance operations and fund expansions abroad when acquisition opportunities arise, Cathay Financial spokesman Daniel Teng (鄧崇儀) said, adding that the conglomerate is looking for expansion opportunities in South East Asia.
As of Sept. 30, local shares amounted to NT$38.82 billion, accounting for 7.9 percent of total investments and generating a 6 percent yield, Lin said.
Foreign bonds and shares made up 52.5 percent and 6.1 percent of total investments, according to company figures, making the group susceptible to bond value changes if the US Federal Reserve hikes interest rates.
Bond values decline when interest rates go up, driving investors to raise stakes in risky assets that generate better returns.
Cathay Financial president Lee Chang-ken (李長庚) said that the company is taking a neutral view on potential interest rate increases by the Fed next month, though higher interest rates bode well for life insurance companies.
“An isolated rate hike would have very limited effect on Cathay Financial. What really matters is whether the increase ushers in a tightening monetary cycle whereupon we have to adjust our portfolio,” Lee said on the sidelines of the conference.
The insurer trimmed its real-estate investments from more than 10 percent to 9.7 percent of its portfolio, as the company shifted more money to overseas investments, Lee said.
The conglomerate might raise overseas investments by 2 percent to 3 percent before hitting the ceiling, Lee said.
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