Fear of China crackdown sends Pru into freefall

Prudential shares went into their steepest decline in six years over fears that the Chinese authorities will implement controls on the sale of insurance products sold by overseas companies. 

Nearly £3bn was wiped off the value of the insurer, which makes most of its money in Asia, after China’s foreign exchange regulator reportedly banned sales of overseas insurance products worth more than $5,000 (£3,450).

Prudential’s shares plunged 8 per cent to 1217.5p as Bloomberg reported that China’s State Administration of Foreign Exchange will tighten restrictions on the purchases of insurance products using UnionPay, the country’s sole domestic debt and credit card provider, on Thursday. 

The speed and size of the drop triggered the Stock Exchange’s circuit breakers to kick in and suspend trading in the company’s shares, although they resumed shortly afterwards.  

Prudential’s Hong Kong business makes 55 per cent of its sales in mainland China, although it accounts for 2 per cent of overall earnings. 

Barrie Cornes, an insurance analyst at Panmure Gordon, said the market reaction was overdone, pointing to figures that show the average Prudential premium is worth $4,000 – within the limit reportedly imposed by the Chinese.  

Nearly $700bn worth of cash moved out of the Chinese currency last year, according to the IMF, and the authorities fear this trend has exacerbated the strain on the country’s weak markets and slowing economy. 

Insurance products sold in Hong Kong have soared over the past two years as mainland visitors try to swerve rules about how much money they can take out of the country by buying policies denominated in dollars. 

Large-scale importing and exporting of manufacturing products is also a problem.

Figures late last year showed a discrepancy between import and export data. China said imports from Hong Kong rose 64 per cent in 2015, but Hong Kong’s export data showed a 0.9 per cent rise – a sign that some firms are using accounting tricks to get money out of the mainland by over-invoicing to help send cash abroad.