(By Rebecca Lipman)
Chinese banks are experiencing sell-offs due to concerns over non-performing loans and a potential hard landing for the mainland economy, but a number of analysts think these fears are exaggerated.
In an interview with CNBC on Wednesday, Jim Antos, bank analyst at Mizuho Securities, said even if the country experiences a hard landing, he didn’t expect a major deterioration of non-performing loan (NPL) ratios. That’s because banks had a lot of latitude on how they handle NPLs. He also feels Chinese banks “are money machines” capable of rebounding from the setbacks.
What’s more, the Chinese government may have more control over how the economy lands than many may think.
In a Reuters poll of economists, most say the China’s economy may be more difficult to slow than anticipated. They suggest government spending and tweaked interest rates can easily be raised to offset any unwanted dips and be used to make the drop as smooth as possible.
According to CNBC:
Separately, analysts said China had strong political reasons to prevent the problems in the shadow banking system from impacting the Big Four lenders, namely Bank of China, China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC) and Agricultural Bank of China.
A lot of the banks have essentially ring-fenced themselves from these risks over the past 18 months and the CBRC, the banking regulator, has essentially put a divide between the banks and some of these trust companies last year, so the amount of collaboration between these two entities is on the decline over the past 12 months or so,” said Mike Werner, senior equity analyst covering Chinese and Hong Kong banks at Sanford C. Bernstein in Hong Kong.
Many of these banks release earnings this week and analysts in the CNBC interview aren’t worried. However they do shed caution for short-term investors. “This week’s earnings would prove to be short-term positive through this earnings week, enabling banks to outperform the market but after that, the medium term concerns on asset quality, equity raising and a bunch of other things will likely come back,” says May Yan, director and head of China banks research at Barclays Capital.
Of course, not everyone is so cheery. “Dr. Doom” Roubini (the man who correctly predicted the 2008 financial crisis) believes the Chinese economy will experience a hard landing, not necessarily from non-performing loans, but from the country’s over-investments in infrastructure that currently average around 50% of the national GDP. He says this unsustainable investment trend has led to economic downfalls in the past and China should be no exception. Certainly Chinese banks would take a hit if the investments trend were to backfire.
Time will tell if the skeptics of the hard landing are correct or not. But we were wondering, what Chinese financial stocks will be most affected in a hard landing scenario?
For a starting point we list below the top 8 Chinese financial stocks on the US exchanges. Do you think these names will take a hit? Use the list as a starting-off point for your own analysis.
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1. China Life Insurance Co. Ltd. (LFC): Life Insurance Industry. Market cap of $65.29B. Provides life, annuities, accident, and health insurance products in China. Share price as of 10/26 at $36.56. It's been a rough couple of days for the stock, losing 8.26% over the last week.
2. China Real Estate Information Corporation (CRIC): Property Management Industry. Market cap of $703.54M. Provides real estate information and consulting services, online services, and real estate advertising services in the People's Republic of China. Share price as of 10/26 at $4.94. It's been a rough couple of days for the stock, losing 5.64% over the last week.
3. E-House (China) Holdings Limited (EJ): Property Management Industry. Market cap of $566.65M. Operates as a real estate services company in China. Share price as of 10/26 at $7.36. This is a risky stock that is significantly more volatile than the overall market (beta = 2.02). The stock has recently rebounded, and is currently trading 20.27% above its SMA20 and 16.99% above its SMA50. However, the stock still trades -24.77% below its SMA200. The stock has had a couple of great days, gaining 10.06% over the last week.
4. Noah Holdings Limited (NOAH): Asset Management Industry. Market cap of $455.48M. Engages in the distribution of wealth management products to the high net worth population in China. Share price as of 10/26 at $8.26. The stock is a short squeeze candidate, with a short float at 23.23% (equivalent to 38.46 days of average volume).
5. Cninsure Inc. (CISG): Insurance Brokers Industry. Market cap of $413.32M. Provides insurance brokerage and agency services, and insurance claims adjusting services in the People's Republic of China. Share price as of 10/26 at $7.99. The stock is a short squeeze candidate, with a short float at 12.28% (equivalent to 11.27 days of average volume). The stock has had a couple of great days, gaining 22.44% over the last week.
6. AutoChina International Ltd. (AUTC): Diversified Investments Industry. Market cap of $338.50M. AutoChina International Limited, through its subsidiary, AutoChina Group Inc., owns and operates a commercial vehicle financing and service centers network in the People's Republic of China. Share price as of 10/26 at $17.2. The stock has had a good month, gaining 74.27%.
7. Syswin Inc. (SYSW): Property Management Industry. Market cap of $93.36M. Provides various real estate services to property and land developers with a focus on residential properties in the People's Republic of China. Share price as of 10/26 at $1.89.
8. China Ceramics Co., Ltd. (CCCL): Diversified Investments Industry. Market cap of $56.21M. Engages in the manufacture and sale of ceramic tiles used for exterior siding, interior flooring, and design in residential and commercial buildings primarily in the People's Republic of China. Share price as of 10/26 at $2.99. Relatively low correlation to the market (beta = 0.41), which may be appealing to risk averse investors. The stock has had a couple of great days, gaining 19.38% over the last week.