Prudential experienced a slowdown in growth within its vital markets of Hong Kong and mainland China during the first half of the year. However, the company’s CEO expressed optimism, stating that China still holds significant potential for the future.

Anil Wadhwani, who has been leading the insurance and investment firm for 18 months, reported a 6% increase in first-half profits, reaching $1.54 billion, which exceeded analysts’ expectations of $1 billion. Despite this, economic challenges in China are impacting the company’s performance.

Meanwhile, the FTSE 100 company, which operates from London and Hong Kong, recorded a 6% rise in annual premium equivalent sales — an important industry measure — totaling $3.11 billion, although this figure fell short of consensus estimates.

Prudential’s new business profit was reported at $1.47 billion, reflecting a slight decrease from the previous year but still surpassing forecasts. The decline was attributed to a high comparative base from last year when the company benefitted from a strong recovery in Hong Kong following the easing of Covid restrictions.

In response to anticipated economic challenges in China, Prudential has taken measures to adapt its business strategy. The company remains hopeful for continued growth in Hong Kong, particularly from mainland Chinese visitors.

Prudential is confident in achieving its long-term growth target of a 15% to 20% compound annual growth rate for new business profits from 2022 to 2027, bolstered by a rise in sales momentum observed in June that is projected to persist into the second half of the year.

Key markets in Asia and Africa continue to show strong demand, according to Prudential, as macroeconomic conditions improve.

In June, the company initiated a $2 billion share buyback program as part of efforts to enhance shareholder returns, which was executed slightly earlier and on a larger scale than analysts had anticipated.

Despite the generally positive outlook, the decline in new business profits led to some investor disappointment, particularly given the ongoing economic difficulties in China and Hong Kong.

Investors were hoping for strong growth in these regions, buoyed by a growing middle class with increasing demands for financial products like health insurance.

Last year’s reopening of the China-Hong Kong border had provided a boost to Prudential’s product demand. However, the current economic challenges in China are hindering further profitable growth.

Russ Mould, an investment director at AJ Bell, commented that Prudential’s strategic shift towards Asia over the past decade has not produced the expected results, particularly following the divestiture of its US and European operations in 2021.

Mould also noted that Prudential’s results were less favorable compared to the Hong Kong-based insurer AIA, which reported significant profit growth in the first half of this year.

On a positive note, Prudential’s shares rose by 4 pence (0.6%) to 666 pence by midday on Wednesday, following the declaration of a first interim dividend which increased by 9% to 6.84 cents.

After experiencing nearly a 30% decline in shares over the past year, the market’s favorable reaction to Prudential’s latest figures suggests a willingness to trust the company leadership and its future strategy.

According to Philip Kett, an analyst at Jefferies, the most encouraging indicator is the increase in sales momentum from June, which appears to be carrying into the second half of the year.

For the six months ending in June, Prudential’s new business profit totaled $1.47 billion, reflecting an 8% increase, or a 1% rise when considering interest rate impacts and other factors.

Wadhwani, age 55, emphasized that the company embarked on the year with a clear strategy and confidence in achieving targeted outcomes by 2027, specifically aiming for a compound annual growth rate of new business profits between 15% and 20%, alongside double-digit growth in cash generation.