Top Biz News

Banking shares fall as govt tightens liquidity

By Wang Bo (China Daily)
Updated: 2010-01-27 08:02

As concerns grow over whether more fundraising plans may be in the works for Chinese banks, investors may be wondering whether buying bank stocks is still a good bet or not.

Amid a sweeping decline in mainland stocks yesterday, most banks shares continued to fall on worries that the government has begun to enact policies designed to cool down the world's fastest growing economy.

The entire banking sector has undergone several major corrections since the beginning of the year, as rumors circulate about banks' fundraising plans and a government clampdown on lending hammers investor sentiment.

"Since there are still many uncertainties that could affect the performance of the banking sector, we expect China's bank stocks will continue to trail market performance in the near term," Li Jianfeng, analyst with Shanghai Securities, said.

Regulators have recently become more serious about using loan quotas to restrict lenders' credit growth on a monthly and quarterly basis.

Liu Mingkang, chairman of China Banking Regulatory Commission, said earlier that the regulator asked lenders that failed to meet regulatory requirements to limit lending.

Though the headline loan target of 7.5 trillion yuan ($1.1 trillion) is sufficient, credit expansion in the first quarter will fall short of market expectations due to more rigorous control over lending by financial regulators, Li said, noting that economic policy direction could have a major impact on the performance of bank stocks.

In addition, more banks are expected to unveil new fundraising plans, thereby following in the footsteps of the Bank of China, which would soak up liquidity in the market, Li said.

In the face of the uncertain prospects of China's banking sector, JPMorgan Chase & Co has lowered its allocation for Chinese banking stocks in its model portfolio, saying they may be hurt in the "short term" by fundraising activities and the possible sale of Industrial & Commercial Bank Of China Ltd shares by Goldman Sachs Group Inc, according to Bloomberg.

However, some veteran investors are still upbeat about the investment potential of Chinese banking stocks.

Wang Yawei, a star fund manager at China Asset Management Company, which oversees more than 300 billion yuan, invested heavily in Industrial and Commercial Bank of China and China Construction Bank, the nation's two largest lenders in the fourth quarter last year.

With the top two banks' shares rallying over 10 percent during this period, the fund under Wang's management gained 116.1 percent, sending the 39-year-old to the top of best fund managers in China list last year, the second time this has happened in the past three years.

"Chinese banking stocks are widely recognized as the most undervalued out there, hence, medium term investments in this sector could be a safe choice," Chen Xi, banking analyst at First Capital Securities, said.