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Chinese banks surge at pace not seen since 2015 as traders chase perennial laggards on valuation, SOE bets
- The rally in banks suggests they have become the new darlings of investors searching for fresh bets
- The run-up has been mainly driven by sentiment and valuation expansion rather than earnings
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Zhang Shidongin Shanghai
Investors have been snapping up Chinese banking stocks at a pace not seen since the 2015 market bubble in the hopes that lenders’ profit growth will accelerate and government-led drives to boost valuations and improve efficiency at state-owned enterprises (SOEs) will underpin sentiment.
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A 10 per cent jump in the Shanghai-listed shares of Bank of China (BOC) on Monday was the first time that the country’s fourth-largest lender hit the exchange-imposed daily limit since July 7, 2015. China Citic Bank and Bank of Xian, a smaller bank, also surged by that much on the day. Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China, the country’s biggest lenders, climbed at least 5.2 per cent.
Such a broad-based rally in banks, which have been market laggards over the past few years amid concerns about their asset quality, suggests they have become the new darlings of investors searching for fresh bets after their reopening plays fizzled out.
Expectations have been growing that more banks will slash deposit rates this year to stem a decline in net interest margins, or the difference between lending and deposit rates, while the industry’s 36 per cent discount to book value on average makes these stocks appealing amid government calls for revaluing SOEs.
“There’s more downside room for the deposit rates,” said Xiao Feifei, an analyst at Citic Securities in Beijing. “We expect both revenue and profit growth to accelerate throughout the year, and the sector has entered a stage of active allocations.”
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