China is not overleveraged, says Prudential CEO Mike Wells

China is not overleveraged: Prudential CEO

The perception that China is overleveraged is simplistic, the chief executive officer (CEO) of Prudential told CNBC Friday during an exclusive interview from the mainland.

"The structure of leverage in the country is improving definitely and has a way to go," said Mike Wells, noting that he did not fully agree with the widespread belief that China is overleveraged.

"You have to look at where China is as an economy. It's at the middle end of an industrial phase … They're still looking at the supply and the demand side of the economy as hard, which I think gets lost sometimes in the narrative about China," he added.

Prudential's Mike Wells.
Simon Dawson | Bloomberg | Getty Images

"I think you will see more structural reform and efficiency in production … There's a very economic look, there's a very balanced look at consumers, they haven't tapped the consumerism that's in the economy by any means and I think there's a lot of upside," opined Wells, highlighting that the insurance group he heads has enjoyed "great growth" in both mainland China and Hong Kong in recent years.

Asked to describe the most challenging operating climate for Prudential, the CEO sounded an optimistic note, asserting that given the group's diversification, they were well placed to deal with any one market.

"The worst environment for us is when people think they don't need to de-risk their portfolios, they simply need to participate in markets and all stocks go up – that's the hardest climate to argue our solutions have a fit," he stated.

Expanding on risks facing the group, Wells highlighted global political risk as one of the main factors to be monitored and drew upon the strong connection between volatility and politics.

"It's a natural fact that consumers can't quote GDP (gross domestic product) to you where they live but they can certainly tell you if they feel good about how the political environment is playing out and that creates tension," he said, explaining that such tension "translates into longer and slower decisions, more cautious allocation of money, delay of purchase, all those sorts of things."

Political risk one of our key global risks: Prudential CEO

Switching gears from theoretical political risk to the looming reality of Britain's exit from the European Union, Wells said the group was well positioned to deal with the immediate consequences.

"The starting point is the 6 million-plus clients and policyholders in the U.K. ... That's probably the key element, how does it impact them, have we got the right products for them? I think we're in good shape there," the CEO vouched.

On March 14, Prudential shares lifted 1.6 percent after the company delivered consensus-beating full-year results which included a seventh consecutive year of double-digit growth in the insurer's Asian business.

"For us the key message of the results was that the Pru will be able to accelerate its performance in Asia over the next five or six years by leveraging its scale, expanding its health and protection offering and increasingly penetrate the wealth of its customers," said Barrie Cornes, insurance analyst at Panmure Gordon in a note following the results release, as he upped his earnings estimates for Prudential for both this year and next.

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