HONG KONG: Shares in insurance group AIA plunged nearly nine percent in early Hong Kong trade on Wednesday after a report said China would clamp down on the purchase of overseas cover.
Beijing wants to close a loophole in its capital controls aimed at stemming the outflow of its depreciating yuan currency, as the economy logs its slowest growth in 25 years.
China limits the amount of money individuals can move out of the country to $50,000 per year, and the overseas purchase of insurance products on credit or debit cards has been a popular way to skirt the controls.
Hong Kong, with its vibrant financial sector and plentiful supply of investment opportunities has been a major benefactor of the trade.
Mainlanders splashed out $2.7 billion on insurance policies in the former British territory in the first nine months of 2015, regulators’ figures show.
But Bloomberg News, citing unnamed people familiar with the matter, reported Tuesday that China’s State Administration of Foreign Exchange will place a $5,000 cap on the use of debit and credit cards to buy overseas insurance products.
The report said the limit could come into effect on Thursday.
Hong Kong listed AIA dropped 8.8 percent to HK$37.35 in the opening minutes of trade Wednesday.
The regulatory move, if confirmed, would be the latest attempt by Chinese authorities to get a handle on a cash haemorrhage as investors and savers seek to shed their yuan amid volatility in the stock and currency markets.
Around $1.0 trillion left China last year, according to Bloomberg Intelligence. In December alone capital outflow from the country was nearly $160 billion, it said.
Manulife, another Hong Kong-listed insurer, lost 5.5 percent to HK$100.70.