Why Prudential’s share price could rocket in 2023

PrudentialToday, PRU stock price online. Over the past month, it has increased by more than 15%. Can it continue to rise in 2023? I believe it is possible.

In fact, I think there could be a significant increase from current levels. This is why.

Prudential has underperformed

Prudential underperformed FTSE 100 index by a wide margin last year. While the Footsie is up around 2% (excluding dividends), Prudential shares are down around 11%.

Much of this underperformance is related to the strict Covid-19 restrictions in China and their impact on the company’s profits and margins. Ultimately, they blocked the ability of mainland Chinese citizens to travel to Hong Kong (a major financial services center) and take out insurance.

Before the pandemic brought cross-border traffic to a standstill, mainland China was the biggest buyer of Hong Kong insurance policies. At its peak in 2016, for example, it bought around HKD$73bn (about £8bn) of policies, representing almost 40% of all premiums collected in the city.

Since the Hong Kong/China border has been closed, premiums generated by mainland Chinese residents have been close to zero. This is reflected in Prudential’s H1 2022 results. For the period, new business revenue from mainland China business did not contribute to Hong Kong’s total new business revenue. In contrast, in 2019, it contributed almost $700m.

China’s reopening is a game-changer

The situation in China has changed dramatically in the past month, or so. In December, China began to significantly ease its Covid restrictions. And on January 8, it opened the border between the mainland and Hong Kong for the first time in three years.

This is a major development for Prudential and is likely to increase demand for insurance products.

It is worth noting that when insurance Manulife surveyed more than 1,600 mainland Chinese residents in 2021, finding that most plan to visit Hong Kong when the border reopens, with more than half saying they plan to buy insurance products there.

So, Prudential’s prospects are growing.

the price is low

Now this development is reflected in Prudential’s share price, which is currently falling. However, I don’t think it’s fully worth it.

Currently, the stock is still more than 20% below its 2021 high. Meanwhile, the stock’s forward-looking price-to-earnings (P/E) ratio is just 12.3, which is below the UK market average.

That strikes me as a relatively low number, because the company’s current growth potential is only focused on the Asian and African markets.

So I think there are more benefits here.

I am bullish

I will point out that I do not expect Prudential’s stock price to rise in a straight line going forward. After the strong gains made recently, there is always a possibility of a pullback in the near term.

Overall however, I am very bullish on the stock. If I didn’t already have a large enough portfolio, I would buy Prudential stock today.