Barclays and UBS dismiss Hong Kong concerns over Prudential

Barclays and UBS have played down reports that Prudential would be hit by a clampdown on Hong Kong sales of insurance products from mainland China, which sent the shares tumbling 8% on Tuesday.

A report from Bloomberg said China's foreign exchange regulator was tightening restrictions on purchases of insurance products overseas to stem money outflows from China, limiting overseas transactions on UnionPay debit and credit cards to $5,000 per transaction.

Prudential's mainland China sales are mostly regular premium and therefore are unlikely to be materially caught by this change, UBS said.

Barclays said they believe "the concerns are misplaced", with 96% of sales to mainland Chinese residents in Hong Kong expected to be well below the cap and Hong Kong representing only 10% of Asian and 3% of group earnings.

"Furthermore, even in the worst case scenario, where insurance products sales in HK to mainland Chinese residents are completely banned, we anticipate Asia new business sales to recover by 2018."

More importantly, the change is unlikely to have a material impact on Prudential's Asian or group earnings, according to a recent presentation from the company that showed that the drivers of earnings from Hong Kong emerge over time as bonuses are paid on its with profits fund, and even if sales were zero, earnings would still grow over the next 10 years.

"We estimate that in the worst case scenario where Hong Kong Chinese mainland sales declined to zero, our 2016 operating profit from Hong Kong would be flat at worst, reducing our group earnings estimate would decline by £50m or 1%."