AIA share price (HKG: 1299) crashed to 7-year low

Lifetime Membership Is this a good time to enter or should existing shareholders throw in the towel? Within the span of just 3 years, AIA share price crashed by a whopping 50% and is now trading at a dismal 7-year low. An SG Wealth Builder wrote in to enquire if the current AIA share price is worth entering.

Founded by Cornelius Vander Starr in Shanghai, AIA Group had been the main Asian subsidiary of American International Group (AIG). Subsequently, AIG left Shanghai in early 1949 due to the civil unrest and Cornelius Vander Starr shifted the company headquarters to New York city.

During the Great Financial Crisis in 2008, AIG was bailed out by the US government for a staggering US$150 billion after one of its business units dabbled in risky collateralized debt obligation (CDO) which almost led to its collapse. Consequently, AIG was forced to sell AIA in 2010 as part of its efforts to repay US tax payers. AIA then made its way back to Asia through a mega IPO in Hong Kong Stock Exchange. Currently, AIA is one of the biggest weighted index stocks in Hang Seng Index, with total assets of US$286 billion as of 31 December 2023.

As mentioned previously in my blog, being included in an index has its merits and downsides. Being listed in Hang Seng Index has its perks as it comes with prestige, boosts the company branding and usually leads to increased trading liquidity for AIA shares. At the point of writing, AIA has a market capitalization of HK$593 billion and dividend yield of 3.07%.

On the flipside, being included in an index has its risks as institutional players may target the stock to reflect the broader stock market conditions. For AIA share price, the severe correction in recent years could be linked to the challenging economic condition in China, which holds strategic importance to AIA in terms of market opportunities for its insurance business. In fact, AIA splashed out US$1.86 billion in 2022 to acquire 24.99 per cent equity stake in China Post Life to accelerate growth in the Chinese life insurance market.

The concern now is whether the China’s economy could tip into a major recession in 2024. The meltdown of China stock market in February 2024 has added further blow to the economy beset by the protracted real estate meltdown and regulatory crackdown on the tech sector. According to the State Administration of Foreign Exchange, China’s net capital outflows reached US$75 billion in September 2023, the highest monthly level since January 2016, decreasing by almost 90% from a year ago. There are growing signs of foreign institutional investors exiting the China market as investors are spooked by the troubled economy of China.

Given the poor macroeconomic condition of China, my opinion is that AIA share price could continue its bearish trend in the foreseeable future. However, this is not to say that AIA is not worth investing. Looking at the business result, AIA could be an interesting investment if one has the holding power to stay vested in the long run. In this article, I will share my insight on the outlook of this bellwether stock of Hong Kong stock market.Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in AIA share before. Whether AIA share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

AIA share price rescued by share buybacks?

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