China stock market

Chinese banks rise to counter global rout and shield mainland stock benchmarks from tumbling

Mainland bank stocks are trading at 11.2 times earnings on the China markets

PUBLISHED : Monday, 05 February, 2018, 1:57pm
UPDATED : Monday, 05 February, 2018, 10:39pm

Chinese banks trading on the mainland’s exchanges defied a global sell-off on Monday to shield the benchmark indices from a shake-out that arose from the US last Friday.

While concerns that the Federal Reserve will speed up the pace of raising borrowing costs sent global markets plunging, the Shanghai Composite Index closed 0.7 per cent higher for the biggest gain in almost two weeks on Monday, the only major market in Asia that registered gains. Traders were buying Bank of Ningbo and other lenders, putting their stakes in the market’s cheapest sector to weather the turmoil.

The bets proved successful. The banking sector remained few of the bright spots on Monday, with Bank of Ningbo and China Citic Bank rising more than 7 per cent. The 22 listed banks on the Shanghai and Shenzhen exchanges are valued at 11.2 times earnings, according to data compiled by Bloomberg. They account for almost a third of the weighting on the Shanghai Composite, the data showed.

Haitong Securities, the No 1 ranked brokerage by the New Fortune magazine, says Chinese banks remain top buys in the following six months as earnings pick up, valuations are low and mutual funds are still underweight in the sector.

Citic Securities, the nation’s biggest listed brokerage, says the net interest margins, or the rate difference between loans and deposits, will improve amid rising demand for credit and provisions for bad loans will fall on a stabilisation in China’s economy.

Banking stocks are expected to experience a double expansion in earnings and valuation
Citic Securities analysts

“Banking stocks are expected to experience a double expansion in earnings and valuation,” said analysts Xiao Feifei and Ran Yuhang at Citic Securities, which recommends buying mainland-listed shares of China Merchants Bank, China Construction Bank and Industrial & Commercial Bank of China.

Smaller banks outperformed big rivals on Monday to play catch-up. Bank of Ningbo climbed 7.7 per cent to 21.62 yuan and China Citic Bank rallied 9.7 per cent to 8.14 yuan, adding to gains of at least 21 per cent this year. China Merchants Bank rose 1.1 per cent and ICBC advanced 2 per cent.

Chinese banks trading in the Hong Kong market also rallied in the afternoon, helping to pare loss on the Hang Seng Index. Among them, ICBC and China Construction Bank both added 0.7 per cent.