Long-only holdings in the insurance sector rebounded, but southbound outflows and a high 3Q base weigh on near-term performance

Overview

The report tracks southbound shareholdings in Mainland China and Hong Kong-listed insurers in July 2026, as well as allocation changes by emerging market and China active long-only funds. The results show overall southbound outflows in July and early August, while long-only fund sentiment improved marginally from June to July, with capital more inclined toward insurers with reasonable valuations and high-dividend or defensive characteristics.

Core views

Long-only fund holdings in Ping An Insurance, PICC P&C and AIA rebounded, reflecting some capital reallocating to defensive and high-dividend assets after market dispersion narrowed. Long-only holdings in China Life were broadly stable. In terms of southbound flows, outflows from New China Life and China Taiping accelerated, Ping An Insurance saw modest outflows, AIA and PICC P&C were broadly flat, while PICC Group recorded net inflows. The sector can still benefit from strong 1H 2026 results and market style rotation, but the high 3Q base and accelerated outflows in early August limit near-term upside.

Analysis framework

The report combines monthly changes in Stock Connect southbound holdings with holdings data from emerging market and China active long-only funds, compares fund flows across different insurers, and explains allocation changes using expected price-to-embedded-value multiples, after-tax illustrated yields of products, high-dividend attributes, earnings trends and catastrophe loss risks.

Methodology notes

• Fund flow analysisMonthly tracking of southbound holdings

  Identify net inflows or outflows of mainland capital by comparing month-on-month changes in the percentage of insurer shares held by Stock Connect southbound investors.

  The report focuses on comparing changes in southbound holdings of each insurer in July 2026 and early August, and combines trends from previous months to assess whether fund flows are accelerating.

• Institutional holdings analysisTracking of active long-only fund allocations

  Observe allocation ratios of emerging market and China active long-only funds to insurance stocks to gauge international institutional investor sentiment.

  The report uses changes in holdings from June to July to judge marginal improvement in institutional sentiment, and links the changes to defensive rotation, high-dividend preference and valuation levels.

• Relative valuationForward price-to-embedded-value multiple

  Assess the valuation attractiveness of life insurers using the multiple of share price relative to expected embedded value.

  AIA's valuation once fell to about 1.05x 2026E embedded value, which is used to explain the rebound in its long-only fund holdings.

• Product competitiveness comparisonComparison of after-tax yields on insurance products

  Compare the after-tax illustrated yields of Hong Kong and Mainland China insurance products to assess the resilience of cross-border insurance demand.

  The report estimates the after-tax illustrated yield of Hong Kong insurance products at about 5.2%, higher than about 3% to 3.5% in Mainland China, and therefore considers the overall impact on cross-border insurance to be manageable.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• AIA Group Ltd

  Long-only fund holdings rebounded, while southbound holdings were broadly stable.

  Strengths

  Attractiveness improved after the valuation pullback, and Hong Kong insurance products still have a yield advantage over Mainland China products.

  Weaknesses

  Concerns over cross-border insurance policy and demand may weigh on the pace of valuation recovery.

  Comparison

  Long-only holdings rose to 2.7%, outperforming China Life, whose holdings were stable.

  Risks

  Changes in cross-border regulation, narrowing product yield advantage and regional market volatility.

• Ping An Insurance Group Co of China Ltd

  Long-only funds increased allocations, but southbound holdings declined slightly in July.

  Strengths

  Has high-dividend and defensive attributes and benefits from market style rotation.

  Weaknesses

  Southbound holdings fell by 0.3 percentage point month-on-month, indicating continued near-term funding pressure.

  Comparison

  Long-only holdings reached 2.9%, higher than the disclosed holdings ratios for AIA and PICC P&C in the report.

  Risks

  High 3Q base, continued fund outflows and weaker-than-expected results.

• PICC P&C Company Ltd

  Long-only fund holdings increased, while southbound holdings were basically flat in July.

  Strengths

  1H 2026 results may be strong, supported by high dividends and defensive rotation.

  Weaknesses

  After strong southbound inflows in May and June, incremental funds weakened in July.

  Comparison

  Long-only holdings rose to 0.9%, the same increase as Ping An Insurance, but the absolute allocation ratio was lower.

  Risks

  Rising catastrophe losses may erode underwriting profit.

• PICC Group

  Southbound funds flowed in against the broader trend in July.

  Strengths

  Southbound holdings rose by 0.2 percentage point month-on-month, standing out amid broad sector outflows.

  Weaknesses

  Accelerated outflows may occur in early August, and sustainability remains to be confirmed.

  Comparison

  Fund flow performance was better than New China Life, China Taiping and Ping An Insurance.

  Risks

  Reversal of fund inflows, underwriting volatility at subsidiaries and a high 3Q base.

• New China Life Insurance Company Ltd

  Southbound funds continued to reduce holdings, with outflows accelerating in July.

  Strengths

  The report did not disclose clear holdings-level advantages.

  Weaknesses

  Southbound holdings fell by 1.6 percentage points month-on-month in July, one of the most significant outflows mentioned in the report.

  Comparison

  The outflow magnitude exceeded its recent monthly decline of 0.1 to 0.9 percentage point and was also weaker than other major insurers.

  Risks

  Continued fund withdrawals, deteriorating market sentiment and a high base for 3Q results.

• China Taiping Insurance Holdings Co Ltd

  Southbound outflows accelerated notably in July.

  Strengths

  The report did not disclose clear holdings-level advantages.

  Weaknesses

  Southbound holdings fell by 0.5 percentage point month-on-month, a significant deterioration compared with a 0.1 percentage point decline in June.

  Comparison

  The outflow magnitude was second only to New China Life as disclosed in the report.

  Risks

  Continued southbound selling and near-term valuation pressure.

• China Life Insurance Co Ltd

  Active long-only fund holdings were broadly stable.

  Strengths

  Institutional allocations remained stable, with no obvious signal of reduction.

  Weaknesses

  Compared with Ping An Insurance, PICC P&C and AIA, it lacked new allocation momentum.

  Comparison

  Holding changes were weaker than the three companies that saw increased long-only fund allocations, but stability was better than companies with accelerating southbound outflows.

  Risks

  High 3Q base, sector fund outflows and insufficient fundamental catalysts.

Key data

• Change in New China Life's southbound holdings in JulyDown 1.6 percentage points month-on-monthContinued to decline since February 2026, with the July drop exceeding the recent monthly decline range of 0.1 to 0.9 percentage point.
• Change in China Taiping's southbound holdings in JulyDown 0.5 percentage point month-on-monthOutflows accelerated significantly compared with a 0.1 percentage point month-on-month decline in June.
• Change in PICC Group's southbound holdings in JulyUp 0.2 percentage point month-on-monthRecorded relatively positive net inflows amid broad sector outflows.
• Change in Ping An Insurance's southbound holdings in JulyDown 0.3 percentage point month-on-monthDiverged from the rebound in its long-only fund allocation.
• AIA long-only fund holdingsUp 0.1 percentage point to 2.7%As of the end of June 2026, the improvement in holdings was related to greater attractiveness after the valuation pullback.
• AIA valuationAbout 1.05x 2026E embedded valueThe report regards this level as an important factor supporting increased institutional allocation.
• Ping An Insurance long-only fund holdingsUp 0.1 percentage point to 2.9%May have been driven by fund flows returning to high-dividend assets from late June to July.
• PICC P&C long-only fund holdingsUp 0.1 percentage point to 0.9%Southbound holdings were broadly flat in July after strong inflows in May and June.
• After-tax illustrated yield of Hong Kong insurance productsAbout 5.2%Higher than the approximately 3% to 3.5% level in Mainland China, supporting the relative attractiveness of cross-border insurance products.

Impact & implications

The funding structure shows a divergence between domestic and overseas capital: near-term profit-taking by southbound funds may reduce marginal liquidity support for Hong Kong-listed insurers, while increased allocation by active long-only funds to Ping An Insurance, PICC P&C and AIA indicates that medium-term fundamentals and valuations remain attractive. If interim results are delivered and the market continues to prefer defensive and high-dividend assets, the sector is likely to receive support; if southbound outflows continue to widen in August, the high 3Q base may amplify near-term share price volatility.

Risks

• The high base in the third quarter of 2026 may pressure near-term growth and share price performance across the industry.
• Broad southbound outflows in July and early August could pressure sector liquidity and valuations if the trend continues.
• PICC P&C faces the risk that rising catastrophe losses could hit underwriting profit.
• Changes in cross-border insurance regulation or market conditions may weaken demand for Hong Kong insurance products.
• If interim results fall short of market expectations, valuation support from defensive rotation may weaken.
• Morgan Stanley has shareholding, investment banking or other business relationships with several covered companies, which may create potential conflicts of interest.

What to watch

• Whether southbound outflows continue to accelerate in August, and whether PICC Group's July net inflows can be sustained.
• Delivery of 1H 2026 results by insurers and management outlooks for the second half.
• The actual impact of the high 3Q base on new business value, premium growth and underwriting profit.
• Whether the market continues to rotate toward defensive and high-dividend stocks.
• The impact of catastrophe losses on PICC P&C's profitability and fund allocation.
• Yield differences between Hong Kong and Mainland China insurance products and changes in cross-border insurance policy.