ICBC rises to 9-year high as Shanghai Composite surpasses key resistance

PUBLISHED : Friday, 25 August, 2017, 3:39pm
UPDATED : Friday, 25 August, 2017, 3:39pm

Industrial and Commercial Bank of China, the nation’s biggest lender by assets, rose to a nine-year high in Shanghai, as traders snapped up the cheap index-weighting stock to drive up the equity benchmark past a key resistance level.

Shares of ICBC advanced 4.1 per cent to 6.16 yuan on the Shanghai exchange, the highest close since May 2008. Trading volumes doubled the stock’s 100-day average, according to data compiled by Bloomberg. The bank’s major rivals including China Construction Bank and Bank of China rose today to the highest since at least December 2015.

The jump in ICBC’s shares coincided with the Shanghai Composite Index’s breach of the 3,300-point gateway on Friday, which was seen by some traders as a major technical resistance after the benchmark failed twice to surpass the level since November. The Shanghai Composite added 1.8 per cent to 3,331.52 at the close.

Given that ICBC is the biggest constituent of the Shanghai Composite with a 5.1 per cent weighting, buying the stock and other index heavy weightings are an easy way out to prop up the benchmark to overcome the resistance level, according to Wu Kan, a fund manager at Shanshan Finance in Shanghai.

“Weighting does matter when the benchmark is about to break out of an important level,” he said. “That’s’ why we see stocks like ICBC surge in that particular timing. And the banking sector’s valuation is pretty low so it’s justified to ramp up the stock.”

Weighting does matter when the benchmark is about to break out of an important level
Wu Kan, Shanshan Finance

The 21 banks on the Shanghai Composite trade at an average of 9.5 times reported earnings, the lowest among all industries, while they account for a fifth of the index’s weighting, according to Bloomberg data.

ICBC is valued at 7.9 times earnings, the highest among the so-called big four state-owned banks, the data showed. The lender is scheduled to release first-half earnings next Thursday, which is estimated to rise 2 per cent to 153.3 billion yuan (US$23 billion), based on Bloomberg’s poll.

Despite a 40 per cent gain in the share price this year, it is still 29 per cent shy of its all-time high set in November 2007. ICBS is currently the world’s 12th largest company with a market capitalisation of US$299 billion, according to Bloomberg data.