China Merchants Bank shares tumble as investors fear escalating trade war could lead to US sanctions
- Lender’s share price has fallen 13.7 per cent from a recent high reported on June 21
- Institutional investors are cutting their positions in Chinese banks
Shares of China Merchants Bank (CMB), a blue-chip stock in Hong Kong, tumbled on Monday, with investors shying away from risky assets that could face further headwinds as the trade war between China and the United States escalates once again.
The Shenzhen-based lender, along with Bank of Communications (BOC) and Shanghai Pudong Development Bank (SPDB), was in June held in contempt of court by a US judge for refusing to comply with subpoenas in an investigation into North Korean sanctions violations. The case could lead to the banks being cut off from the US financial system.
The stock fell by 6.5 per cent on Monday before recovering slightly to close 4.9 per cent lower at HK$35.9 in Hong Kong. Its Shanghai listed shares also eased, closing 3.5 per cent lower at 35 yuan.
The company reported an interim result in line with expectations after the market close on Friday. Its net profit grew by 13.1 per cent year on year to 50.6 billion yuan (US$7.1 billion). Its gross non-performing loan formation ratio rose 28 basis points year on year to 1.2 per cent.
“CMB is still able to maintain strong profit growth and higher-than-peers return of equity in the second half of this year to 2021, in our view … However, potential US sanctions, though very unlikely, remain a concern,” said Chen Shujin, chief financial analyst with Huatai Securities in Hong Kong.
A more important reason behind Monday’s decline is that most foreign investors are bearish about the Hang Seng Index for the whole year, and CMB has a higher beta among banking chips – essentially moving with a bigger band when the benchmark index moves, Chen added.
