China Bank Stocks Are Rallying Too Fast for Comfort

Bankers get a bonus and I have a job because we’re still in a bull market. 

But the fast and furious rise in China bank stocks is making even this Hang Seng Index bull nervous.

Recall the mainland’s stock frenzy in the spring of 2015. Lenders were the laggards then, but once they started climbing, the rally soon went belly up.


Laggards in the 2015 rally, China’s biggest banks are now leading the market back to a two-year high

Source: Bloomberg

Now, major lenders are leading the record-breaking 19-day run in Hong Kong’s H shares. Collectively, the nine banks on the Hang Seng China Enterprises Index already have risen over 20 percent this year, contributing more than half of the benchmark’s gain. Investors didn’t even flinch when the government this month slapped a 462 million yuan ($72 million) fine on Shanghai Pudong Development Bank Co. for hiding nonperforming assets through 1,493 shell companies. 

Are China’s largest banks getting safer or is this the beginning of the end?

Analysts are betting these institutions will emerge as winners of China’s deleveraging campaign. Faithful followers of policy, the big four — Industrial & Commercial Bank of China Ltd., Bank of China Ltd., China Construction Bank Corp. and Agricultural Bank of China Ltd. — have stayed away from shadow banking, the primary target of the clampdown. In the first half of 2017, the quartet’s exposure to off-balance-sheet lending was a negligible 2 percent, versus 17 percent for other listed banks, Deutsche Bank AG estimates.  


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