Low valuations spur buying after sharp declines Financial stocks surged in Hong Kong yesterday, as investors bought on low valuations in anticipation of more bailouts and stimulus measures from the government to tackle the financial crisis. HSBC Holdings snapped a five-day, 29.91 per cent decline to gain 20 per cent, compared with the 14.35 per cent increase in the Hang Seng Index, of which it is the biggest constituent. Of the mainland's largest lenders, Industrial and Commercial Bank of China advanced 16.43 per cent, China Construction Bank Corp surged 23.28 per cent and Bank of China rallied 22.22 per cent. Mainland insurers China Life Insurance and Ping An Insurance (Group) rose 13.89 per cent and 8.33 per cent, respectively. 'Bank shares had been oversold because of redemptions from mutual funds and hedge funds in Hong Kong. With the completion of such moves, the shares will not hit new lows in the near future,' said Zheng Tuo, a fund manager at Bank of Communications Schroders Fund. 'Banks are generally undervalued, with some having a price-book ratio as low as 1:1. For mainland lenders, their performance is backed by a resilient economy,' Mr Zheng said. ICBC and CCB reported sharp declines in profit growth for the third quarter as they grappled with the global economic downturn and a weaker domestic market. BOC's quarterly earnings are due out tomorrow. ICBC's profit rose 25.54 per cent in the quarter, the slowest pace since the bank went public two years ago. CCB's increased 12 per cent year on year, well below the 71 per cent growth in the first half. 'The results were generally in line with our expectations. We don't believe the business climate for the lenders will deteriorate significantly,' Mr Zheng said. Chen Ge, a fund manager at Fullgoal Fund Management, said the rebounds in financial stocks would be short-lived. 'I think the current valuations are reasonable, reflecting people's expectations. As pessimism permeates the market, I don't think shares of the financial firms will continue to rally,' Mr Chen said. Bank stocks also rose in the mainland's A-share market, led by city commercial lender Nanjing Bank's 10 per cent increase. China Life edged up by 0.78 per cent but Ping An shed 0.43 per cent. 'With Ping An below HK$25 and China Life below HK$20 [in Hong Kong], both names are still expecting to deliver over 20 per cent new business value growth,' Citigroup said. 'Life insurers should remain as relative outperformers amid a global recession.' Ping An has taken a massive write-down on its stake in Fortis, the troubled Belgian financial group, and reported on Monday its first quarterly loss since listing in 2004. 'To us the core results [of Ping An] look satisfactory, the Fortis loss was already reflected in the share price, and such an overhang will disappear,' said a Kim Eng Securities report. 'We believe Ping An will try to avoid making a loss in 2008 by all means ... making losses this year will damage Ping An's future capital raising plans.'