Bank of China and peers share price fell on China tightening

Chinese Bank Shares Drop After Reserve Ratio Hike
Shares in major Chinese banks fell in Hong Kong on Monday after China raised the proportion of deposits that lenders must keep in reserve at the central bank, in a move to rein in inflation and mop up excess liquidity.
By 0251 GMT, the Hong Kong-listed shares of Industrial and Commercial Bank of China, the world's most valuable lender, were down 1.2 percent, similar to China Construction Bank's decline.

The benchmark Hang Seng was down 1.33 percent.

"There's going to be a lot of volatility, and investors must be prepared for that," said Sarah Wu, an analyst at Macquarie who is still overweight on Chinese banks.

"The issue right now is still on the government policy clarity front, and that remains the biggest overhang for the sector."

Smaller rivals Bank of China and Bank of Communications were down 1.5 percent and 2.3 percent, respectively.

On Sunday, China's central bank said it was lifting lenders' reserve requirement ratioby 50 basis points effective May 10, its third increase of that magnitude this year.

Chinese stock markets are closed for a holiday on Monday.

Fears that Beijing may further tighten monetary policy by raising the cost of lending have weighed on Chinese stocks this year, with China's stock markets the worst performing in Asia so far since January.
China has already said it aims to reduce new lending nationwide by 22 percent this year to 7.5 trillion yuan ($1.1 trillion), and banking regulators have repeatedly urged banks to be cautious when extending new loans.
ICBC is down over 11 percent so far this year, while CCB has shed 4 percent and BoCom is down about 2 percent.

ML's Take:

Chinese Tightening is not surprising. Have seen this coming since early part of the year. The most important questions is what next and how much more to go.

Recent data seems to suggest that the chinese economy is still powering ahead and housing prices are still on a high. Do expect more tightening ahead and this will keep a cap on chinese banks stock growth.

However, do note that stock tends to fall on initial tightening, but will rise going forward as tightening is a often a sign of strength in the economy. I still am a bull in stock, and see the improving economy as the foundation for stronger stock price.

Nonetheless, do not that interest rate environment is still generally low throughout, so the initial tightening will be the immediate effect that you will see.




This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework. ML is a licensed stockbroker with one of Asia Leading Stock Broker firm. To contact him, please email: icewolfmike@gmail.com