Chinese Banks Rally in Hong Kong on Signs of Economy Stabilizing

Chinese banks rose in Hong Kong for a second day after economic data signaled a recovery in growth, easing concerns that bad loans will increase.

China Minsheng Banking Corp., the nation’s first privately-owned lender, climbed 13.2 percent yesterday and today, the biggest two-day gain since the stock began trading in Hong Kong in November 2009. China Merchants Bank Co. rose 11.6 percent and Agricultural Bank of China Ltd., the country’s third-biggest lender, gained 9.6 percent. Hong Kong’s benchmark Hang Seng Index rose 3.4 percent on this week’s first two trading days.

An acceleration in July industrial output and better than expected increases in exports and imports signaled growth in the world’s second-biggest economy is stabilizing. Lending data released after markets closed Aug. 9 showed bank credit accounting for the largest percentage of total financing since September 2011, suggesting efforts to curb shadow banking are taking effect, according to Daiwa Capital Markets Hong Kong Ltd.

The lending data is “helping alleviate investor concerns over the risk of shadow banking,” Grace Wu, a Daiwa analyst in Hong Kong, said by e-mail today.

An increase in less regulated lending outside the banking system and borrowing by local governments has made it more difficult to gauge China’s total outstanding debt, according to Fitch Ratings’ Charlene Chu. Fitch cut China’s long-term local-currency debt rating in April, citing rising risks to the country’s financial stability given the lack of transparency for credit.

Bank Shares

Industrial and Commercial Bank of China Ltd., the nation’s biggest lender, rose 6.2 percent in Hong Kong in two days. China Construction Bank Corp. climbed 6 percent and Bank of China Ltd. gained 5.7 percent.

China Merchants Bank surged 7.2 percent today after the Apple Daily newspaper reported that it may announce terms for a 35 billion yuan ($5.7 billion) share sale on Aug. 16. The bank has postponed the sale twice.

Investors will be “relieved” by the news, Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., wrote in a note today, raising his recommendation on China Merchants Bank’s shares to neutral from underperform.

Agricultural Bank of China’s shares rose this week after the South China Morning Post reported yesterday that it would lend the city of Shanghai 250 billion yuan. Such a loan may indicate that China’s central government is ready to loosen credit to boost economic growth, said Edmond Law, a Hong Kong-based analyst at UOB Kay Hian Ltd.

“Investors see overall macro improving,” Law said by phone today. “That’s why they are buying the stock.”