Investors looking for safe stocks among Chinese banks
Short seller Jim Chanos sees trouble brewing in China (YANG) (FXP) (CHAD). The average loan-to-deposit (LTD) % of Chinese banks has been rising, in effect, fueling a resurgence in off-balance sheet financing. Many in the investment community are wary about investing in China, including but not limited to billionaire hedge fund manager Kyle Bass. Others find it an opportunity to invest in safe stocks while the overall market is weighed down. The noise around the regulatory crackdown pioneered by the China Banking Regulatory Commission under the aegis of President Xi is putting pressure on capital assets in China. Consequently, China is already witnessing a bond sell-off in its fixed income market.
69% stress-free banks; 3 relatively attractive
Frontera recently analyzed the individual LTD ratios reported by Shanghai Stock Exchange listed banks. The assessment revealed that 69% of banks are relatively stress-free, while 31% breach the previously mandated threshold of 75%. Of the 69% below the threshold, we found 3 banks which: a) Comfortably passed the LTD stress test, b) have delivered good returns so far this year, and c) continue to trade at exceptionally attractive valuations in China (FXI) (ASHR) (YINN).
They are Agricultural Bank of China (ACGBF) (ACGBY), Industrial and Commercial Bank of China (IDCBF) (IDCBY), and China Construction Bank (CICHF) (CICHY). Let’s take a quick look at what Wall Street analysts recommend for these stocks. Our assessment is based on data as of May 19, 2017.
Agricultural Bank of China
76% of Wall Street analysts have a BUY rating on the Agricultural Bank of China (ACGBF) (ACGBY). The company has 63.36% loans-to-deposits and its tier 1 capital ratio equals 11.16%. The stock currently trades at an attractive P/BV of 0.81, thus, an attractive buy.
Industrial and Commercial Bank of China
92% of Wall Street analysts have a BUY rating on the Industrial and Commercial Bank of China (IDCBF) (IDCBY). The company has 72.21% loans-to-deposits and its tier 1 capital ratio equals 13.51%. The stock currently trades at an attractive P/BV of 0.91, thus, an attractive buy.
China Construction Bank
85% of Wall Street analysts have a BUY rating on China Construction Bank (CICHF) (CICHY). The company has 74.98% loans-to-deposits and its tier 1 capital ratio equals 13.14%. The stock currently trades at an attractive P/BV of 0.86, thus, an attractive buy.
For more insight into the regulatory crackdown in China, read Will President Xi Be Able To ‘Make China Great Again’?
