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Insurance Face-Off: Should Investors Buy Ping An or AIA Group?

One of the fastest-growing industries in China is insurance.  And it doesn’t look like this industry is slowing down anytime soon.

Insurance penetration in China is still far lower than it is in fully-developed markets. That means the market will likely continue to grow, driven by China’s GDP growth and a rising middle class.

For investors looking for exposure in this industry, two major players come to mind. Those players are Ping An Insurance Group Co of China Ltd (SEHK: 2318) and AIA Group Ltd (SEHK: 1299). But out of these two, which one is the best long-term choice for investors?

In this article, I’ll consider aspects of both companies to help investors make up their minds.

Business overview

Both Ping An and AIA are heavily involved in China’s insurance industry. Yet unlike AIA, Ping An’s business extends beyond insurance, entering areas like banking, asset management, fintech & health tech, and more.

By investing in Ping An, investors gain exposure to the whole financial services industry, as well as the latest technological sectors like cloud computing and fintech.

Beyond that, AIA is focused on providing life insurance products to customers across 18 specific markets in the Asia-Pacific region. This is another major difference between the two companies as Ping An provides both life and general insurance products to its customers, who are mainly based in China.

Investors should take note of the major differences mentioned above when comparing both companies.

Valuation

Another factor to consider before investing in either company is valuation.

Everything else being equal, we would want to invest in the cheapest company for the best value. So which company is cheaper now? Let’s look at two ratios, price-to-book (PB) ratio and price-to-earnings (PE) ratio, to give us some clues.

According to Ychart, the PB ratios for Ping An and AIA are 2.4 and 2.4, respectively (as of writing). On the other hand, the PE ratios for both companies are 9.2 and 17.0, respectively.

Putting the numbers into perspective (and not considering the prospects of both companies), I could argue that Ping An is the cheaper company due to its lower PE ratio.

Foolish conclusion

In conclusion, we can see that while both companies are heavily exposed to China’s booming insurance industry, there are still differences between them that investors need to note.

For investors who want exposure only in the life insurance industry, AIA might be the best candidate to consider. Conversely, for investors looking for a more diversified business, Ping An might fit the bill.

What’s more, investors should also consider the valuation of both companies when making up their minds.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.