China Bank Rally Takes A Breather

After a series of moves and reviews, the big 5 Chinese banks blasted upwards in February, outpacing the rocketing Hang Seng.  Over the past couple of days, however, they’ve retrenched.   If Morgan Stanley and Short trading interest are to be believed, this is a temporary reversal.

The banks include:

Name	Acronym	HK symbol
Industrial & Commercial Bank of China	ICBC	1398
China Construction Bank	CCB	939
Agricultural Bank of China	ABC	1288
Bank of China	BOC	3988
Bank of Communications	BOCOM	3328

Despite rising Non performing loans, shrinking net interest margins and capital requirements, these banks have surpassed the rising Hang Seng thanks to interest rate rises, increased lending, China stimulus and PPI rises.

Timeline of positive factors:

1/24/2017 – Interest rates raised on medium term rates on loans.

2/03/2017 – Interest rates raised on short-term debt, reportedly in the interests of liquidity due to perceived resulting from the Chinese New Year.

2/14/2017 – Morgan Stanley published a bullish report on China Banks. Banks.

2/15/2017 – Bloomberg reported that options trading reacted positively to the bullish stance of Morgan Stanley on the big 4 banks, (all of banks listed above excluding BOCOM, which isn’t included in the  big 4).

None of these banks have reported annual earnings.  While earnings seasons has just about ended in the US, annual earnings reports for Hong Kong listed stocks are trickling in.  Regardless of the annual earnings, they won’t reflect the February 2017 change in interest rates and producer price inflation which Morgan Stanley reports.

Given the significant decline in short-term selling ratios for all but BOC, 3988 HK, the recent drop could signify a temporary drop versus a long-term decline.  At least for the short-term.

 

 

 

 

Shanghai Hang Seng Update

The Hang Seng’s rise was muted with only Hong Kong Exchanges & Clearing, HK 388 up over 5%, as Premier Li Keqiang promises a Hong Kong Shenzhen connect. Energy stocks dropped which kept the overall rise relatively flat.  In contrast, the Shanghai Comp rose over 2% thanks to reports that margin lending rates were being reduced.

The smaller Hang Seng Enterprises Index rose more than the Hang Seng , at +.51% thanks to  brokers as well as insurers.

 

Hang Seng Plummets Toward Recent Lows While Shanghai Falters

Wednesday’s close in Both Hong Kong and Shanghai reflected the reality of growth slowing beyond the 7% strongly held target.

All sectors were hit as all but 4 of the Hang Seng constituents crashed.  Hardest hit were financials and energy-related but no sector was safe with the exception of the traditional utility haven which included CLP holdings, HK 2 and Power Assets Holdings, HK 6, with minor increases.  Insurance companies moved downward in tandem on news that China would restrict overseas insurance sales  to quash attempts to move money out of China beyond allowed limits.  Beating them all to the bottom, however, was Lenovo, HK 992, falling over 10% thanks to a a 3 month year on year revenue drop of 8% primarily from  a 12% drop in computer revenue and smartphone revenue 4% decline.  Industry wide computer sales have been weak and the Motorola late 2014 purchase has done little to increase it’s smartphone market share which is hovering at around 5%.

Thanks to reportedly extraordinary efforts, the yuan held relatively steady.