CHINESE banking equities are expected to see stronger growth, underpinned by improving performance and a sounder regulatory environment, as well as particularly benefitting from the opening of China’s capital markets.
Liu Yang, chairperson and CIO at Atlantis Investment Management, says she has increased allocations to the banking sector for the first time in 18 years. “Last year, it was a big year for insurance. This year is a big year for banks,” says Liu, who is often compared to Warren Buffett by Chinese media for her investment insights.
Justin Sun, executive director at China Universal Asset Management Hong Kong, holds a similar view. “We are very positive about the banking sector,” he says. “Some of the China-based banks have some improvements, in terms of their performance and their balance sheet,” Sun adds.
Liu notes that banking stocks have not always been recognized or mentioned among the top allocation choices for asset managers. “I was always questioned by my investors over the 18 years since I started doing investing in Hong Kong – ‘do you really trust the banks?’ Because the Chinese banks in general never outperformed for many years,” she says.
“This time is different. At this very moment, for the first time I have been increasing allocations to the banking sector,” says Liu.
One of the reasons that Liu is buying Chinese bank stocks is related to the positive performance of the Chinese banking sector. “This year, the net interest margin (NIM) of the banking industry for the first time will grow in double digits. This is something serious,” says Liu.
Another reason is that the management of the Chinese banks will be change is due to younger talent taking up senior positions, according to Liu. “In the banking sector, the young and talented people are in place now,” Liu says.
In addition, China’s regulatory direction is becoming increasingly clearer with the implementation of strategies to open up the financial sector. Banks stand to benefit from a more stable regulatory environment with the merger of China’s banking and insurance regulators to create the China Banking Insurance Regulatory Commission (CBIRC), says Liu. “What we worry about the most are black swans. The merger, which produces more efficient supervision, will reduce black swan events,” she says.
Chinese banks also stand to particularly benefit from the wider changes in China’s economy, for instance, the development of the consumer economy and the steady opening-up of China’s capital markets. “Now everyone can see that China’s economy has been recovering. The worst time has already passed in 2015. That is why I think the banks have very good potential. With the large population in China and upgrading of the consumption, banks can benefit from this process,” Sun says.
Chinese regulators announced late last year that the foreign shareholding ceiling of Chinese securities, fund management and futures companies will be lifted from 49% to 51% this year. “China’s government is trying to more aggressively open up its capital market. Some early birds already began to hand in their application for setting up their 51% owned subsidiaries in China,” explains Ding Chen, CEO of CSOP Asset Management and chairperson of Chinese Asset Management Association of Hong Kong.
“Don’t miss China’s opportunity,” Ding says. “Foreign investors need to have a very full and clear picture of how to get access to these opportunities.”