Chinese banks in your portfolio?

Is the time to buy stocks in Chinese banks?

A report from Bloomberg Markets on February 15, 2017 suggests that it is.

Bank stock is surging

For example, Agricultural Bank of China Ltd. gained 15 points in the prior week. It’s stock has been falling by an annual average of 2.7 percent since 2010. The Bank of China Ltd. has seen its stock jump to levels not seen since August 2015.

The banking industry has strengthened due to modest monetary tightening in China and the stabilization of bad loans. Banks have also been helped by the rise of China’s money-market rates. In addition the country is benefiting from a stronger demand for credit. Total financing reached an all-time high last month, with new loans the second-highest on record.

A warning voice

Not everyone sees good news, however. “Investors are still worried on a structural basis how China banks are going to recognize nonperforming loans (NPLs),” said Arthur Kwong, Hong Kong-based head of Asia-Pacific equities. “At this moment NPL formation and total credit cost over the last couple of years are still quite below what the market is expecting to see.”

For Dexter Hsu, an analyst at Macquarie Securities Ltd., the improving outlook for banks matters more than the credibility of bad loan data. "For us, the most important thing is that the trend is changing," Hsu said. "The rebound in PPI (the producer price index) and rising property prices are all good for asset quality.”

Source: Bloomberg Markets