Why Prudential shares are undervalued by 59%
Shares in the popular insurance giant crashed recently to their lowest in almost a year, but some experts believe the selling is overdone. City writer Graeme Evans explains.
11th June 2026 14:30
by Graeme Evans from interactive investor
Credit: Timon Schneider/SOPA Images/LightRocket via Getty Images.
Heavily sold Prudential (LSE:PRU) shares have been given support after a City bank said the extreme downside of a China crackdown on cross-border investments was fully priced in.
The FTSE 100-listed shares were 911p in dealings yesterday morning, having slid 20% from the 1,145p seen on 21 May amid fears that regulatory changes will potentially impact mainland Chinese flows into the Pru’s savings products in Hong Kong.
Asia-focused lenders have also suffered a loss of value, with HSBC Holdings (LSE:HSBA) down by 10% between late May and yesterday’s 1,273p and Standard Chartered (LSE:STAN) 14% cheaper in the past week to 1,768p.
All three stocks regained ground in today’s FTSE 100 index session, with Prudential up 25.4p to 951.6p and HSBC and Standard Chartered back to 1,328.4p and 1,849.5p respectively.
However, UBS sees further upside for Prudential based on a 12-month price target that it has held since March of 1,470p. This represents an upside of 59% on last night’s price of 926p, in addition to a forecast dividend yield of 2.9%.
The bank is awaiting clarity from authorities on the application of China’s SAFE rules, which allow $50,000 per person per year to be transferred from a mainland bank account to a Hong Kong account.
The risk facing Prudential is that the “source of funds” requirement introduced on 22 May in relation to banking sector investment accounts is also applied to insurance savings products.
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This could potentially mean that insurers are not allowed to issue savings policies bought using funds from mainland China.
Should authorities introduce “source of funds” rules for insurance, the bank’s downside scenario analysis indicates a fall of between 11% and 18% on the Pru’s 21 May valuation.
It said: “We note that since 21 May Pru has already underperformed the wider European insurance sector in line with our extreme downside scenario. Therefore, we conclude that an extreme downside scenario appears to be priced in already.”
UBS estimates that about 17% of the group’s new business is driven by mainland China investors buying Hong Kong savings products. This compares with its earlier assumption for a figure of around 30%.
The range of UBS’s stress testing reduces Pru’s Hong Kong book value by between 20% and 40%, which allows for higher potential lapses, and applies a 5-15% new business multiple de-rating.
The bank said an upside scenario could see no incremental restrictions, with existing money laundering control frameworks deemed sufficient. Economic stability, particularly currency strength, may influence this outcome.
In contrast, a downside scenario involving a strict prohibition on buying insurance savings products would reflect policy intent to retain domestic capital and support local markets.
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Prudential has pivoted its operations over recent years to concentrate on Asian and African markets, including leading positions in fast-growing and increasingly affluent Asian markets.
It focuses on savings and health and protection products, supported by a leading agency and bancassurance distribution network.
In dealings disclosed on Tuesday, Prudential said that board chair Douglas Flint spent £115,000 on shares in a transaction that took place on the Hong Kong stock market last Friday.
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