The cycle for monetary easing in China since November, 2014 is affecting the earnings of Chinese banks, however, the change is not reflecting on their share prices.
According to a report by Barclays, the investors, who have been selling out banking shares amidst the bad-debt concerns and the shrinking margins, should reconsider offloading, as they could miss out on a rally stimulated by the deregulation rolled out by the Chinese regulators.
A textbook practice for the investment managers in the key equity markets of the world was to stay away from the banking stocks in the phase of easing cycle, as the history is stuffed with the harsh lessons of banks, which have commonly performed worse or at the best in-line relative to the benchmark index of China. This time around, the banks in China are being an exception.
Not only can the US$161 billion program for debt-swapping to replace the local government’s current debt assist in alleviating the default stress that is plaguing many banks, but also the further improvements by the bank themselves, such as permitting employees to possess more shares and sell out some underlying stocks, could bring positive impact on the market.
Barclays also stated that any further deregulations and reforms, particularly those, which are specified to the banking sector, could maintain their support for share price performance, adding that the procedure may be a gradual and will put positive impact over the medium to long term period.