It was certainly a rollercoaster 2016 for Manulife Financial Corp. (TSX:MFC)(NYSE:MFC). The first half of the year was weak; investors punished the stock for having had a disastrous 2015. And then the company continued to deliver bad news, warning of a $500 million actuarial charge due to not being conservative enough. But then November hit, and things did a complete 180. The stock has been on a tear ever since.
This is thanks to the news that the U.S. Federal Reserve would be increasing benchmark interest rates from 0.25-0.50% to 0.50-0.75%. Although this is a small move, this was seen as a positive sign for the American economy, which only further strengthened the U.S. dollar. Because Manulife has invested heavily in U.S. dollars and assets that benefit from growing interest rates, investors got excited.
But even without this change in interest rates, Manulife has always been worth considering primarily because it has a powerful business model that allows it to bring in generous amounts of money, which it reinvests in other assets. The insurance business model enables firms like Manulife to take the difference of premiums and what’s paid out–the float–and invest it in a wide variety of assets. That’s how Warren Buffett got rich.
And Manulife has identified one key area that is going to help it make a massive amount of money: Asia.
As nations in Asia continue to develop, wealth is being created at a scale that the world has never seen. This developing middle class is hungry for the products Manulife offers: insurance, mutual funds, pension plans, etc. Because of this, Manulife has been expanding aggressively into different countries in Asia.
In September 2015, Manulife bought the pension business from Standard Chartered Bank, one of the oldest banks in Hong Kong. It will also be in the bank’s sole insurance provider for 15 years.
In January 2016, Manulife signed a 15-year partnership with DBS Bank whereby Manulife would be the exclusive provider of insurance products to the bank’s clients in Hong Kong, Indonesia, Singapore, and China.
And finally, in August, Manulife signed an agreement with FTB Bank in Cambodia to sell life insurance products to the bank’s customers.
Manulife’s Asia division posted net income of US$430 million versus US$84 million a year prior. This was, in part, thanks to the 28% improvement in sales to US$633 million. All told, the company delivered $1.117 billion in net income attributed to shareholders–up from $622 million in the year prior. And its return on equity was 11.1%–up from 6.5%.
The reality is quite simple for the insurance company: it is doing absolutely fantastic. While it is likely going to generate more money because of growing interest rates, I’m even more bullish on the continued growth in insurance and retirement products that the Asian markets are going to buy over the next 10-15 years.
And with Manulife being the exclusive partner to many of the largest banks, I expect the coming years to be quite exciting. I believe you should load up on this stock.