Tuesday, December 24, 2013

Are China bank stocks cheap or just crummy?

China banks are trading at bargain basement valuations, but analysts can't agree on whether they're cheap or just crummy.

The sector just got even cheaper, with Hong Kong and China listed bank shares falling around 5.5-7.3 percent over the past two weeks as interbank rates spiked higher on a seasonal liquidity squeeze, before posting a slight recovery Tuesday as rates eased.

The performance of the China bank stocks can sway the entire market, with the financial sector taking a more than 34 percent weight in the MSCI All China index.


Some analysts are skeptical of the banks' prospects amid concerns not just that bad loans may rise as economic growth slows, but also on how big the bad debt problem might be.

"Everyone is pretty much in agreement that the provisioning they report is on the low side. But nobody knows exactly how much it is," said Hartmut Issel, chief investment officer for Asia Pacific at UBS Wealth Management.

The question came into sharper focus earlier this month when China Citic Bank said it would seek shareholder approval to increase its write-offs to around 5.2 billion yuan, or around $860 million, spurring concerns over whether the entire sector's loan quality may be slipping.

While Citic's nonperforming loans are among the worst for mid-sized China banks, it isn't clear if that's because the bank is more proactive in writing down loans. Citic was China's 12th largest bank by asset size at the end of 2012, according to data from S&P.

"When you come closer to a situation where you can gauge or that the black box risk is visibly receding, then you can grant a higher valuation" to the sector's stocks, Issel told CNBC. He expects signs the government is pressing ahead with planned reforms for the sector can spur a re-rating.
Others disagree.

"Reform comes with a huge cost of dislocation in the real economy," said Hao Hong, managing director for research at Bank of Communications.

While many banks are trading below book value – Morgan Stanley puts the average at around 0.8 times 2014 book value – Hong noted the sector traded at even lower valuations of around 0.5 times during the financial crisis. "Valuation can go lower from here," he told CNBC, citing earnings concerns.

"The short-term interest rate squeeze is going to have an impact on the banks' profitability," he said.

In addition, "the bad loan provisions or bad loan estimates on many banks' balance sheets are probably underestimated, so we will see more charges on the P&L (profit and loss statement) of many of the banks," Hong said.

(Read more: Is it time to get over your fear of US-listed Chinese stocks?)

"The NPL (nonperforming loans) is going to rise in the coming years because of the economic slowdown," he said.

Some are more sanguine on the banks' earnings outlook, but don't see much upside ahead for the shares.

After raising its economic growth forecast for China, Nomura said it expects the bank stocks to find a floor as the improved prospects help to ease concerns about asset quality.

But it added, "these shares are likely to be range bound for some time, on structural challenges including rising competition from online financing and rate deregulation."


Source/Extract/Excerpts/来源/转贴/摘录: CNBC
Publish date:23/12/13

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Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)
“错过时机”胜于“搞错对象”:不会全军覆没!”
做自己熟悉的事,等到发现大好机会才投钱下去

乔治·索罗斯(George Soros)

“犯错误并没有什么好羞耻的,只有知错不改才是耻辱。”

如果操作过量,即使对市场判断正确,仍会一败涂地。

李驰(中国巴菲特)
高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo


There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
冷眼(冯时能)投资概念
“买股票就是买公司的股份,买股份就是与陌生人合股做生意”。
合股做生意,则公司股份的业绩高于一切,而股票的价值决定于盈利。
价值是本,价格是末,故公司比股市重要百倍。
曹仁超-香港股神/港股明灯
1.有智慧,不如趁势
2.止损不止盈
成功者所以成功,是因为不怕失败!失败者所以失败,是失败后不再尝试!
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每逢灾难就是机会,而是在灾难发生时贱价买股票,然后放在一边,耐性地等灾难结束
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