Credit Growth Boosts Chinese Bank, Industrial StocksBelinda Cao
Financial and industrial stocks are poised to benefit amid an increase in lending as China moves to boost economic growth, according to investors from Marketfield Asset Management LLC to Greenwood Capital Associates LLC.
Chinese insurers and banks rallied in New York on Feb. 13 after government data showed the broadest measure of new credit rose for a third straight month in January. Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, posted the steepest weekly gain since the five days ended Jan. 9.
Aggregate financing rose in January as new yuan loans jumped after the People’s Bank of China lowered reserve requirements for lenders on Feb. 4, following cuts in benchmark interest rates in November, the first in two years. Policy makers will continue to stimulate the economy after it expanded at the slowest pace in 24 years in 2014, helping stabilize growth and support the stock market, according to Walter Todd at Greenwood Capital.
“Funding to the corporate sector remains quite generous and should be expected to improve further given the recent reduction in banks reserve requirements,” Michael Shaoul, the New York-based chief executive officer of Marketfield Asset Management, said by e-mail Feb. 13. “Conditions for corporations, particularly large cap public companies remain favorable. Conditions for the banks and financials are good.”
Aggregate financing rose for a third straight month in January to to 2.05 trillion yuan ($328 billion), the PBOC said, matching economists’ estimates. Local-currency bank lending doubled from a month earlier to 1.47 trillion yuan while trust and entrusted loans, vehicles for shadow lending, dropped from December.
ICBC, China Life
The Bloomberg China-US Equity Index of the most-actively traded Chinese companies traded in the U.S. climbed 1.3 percent to 115.06 on Feb. 13, taking its weekly gain to 2.1 percent. U.S. markets are closed for a holiday Monday.
The figures showing a reduction in loans that are not reflected on companies’ balance sheets will be positive for financial stocks, said Chang Liu, a London-based China economist at Capital Economics Ltd.
It “means more credit will flow to banks, and risks in the banking system will be lower because of more transparency,” Liu said. Capital Economics predicts additional cuts to interest rates and banks’ reserve requirements this year, he said.
Industrial & Commercial Bank of China Ltd., the world’s largest lender by assets, rose 1.4 percent last week to $14.58 in U.S. over-the-counter trading. China Life Insurance Co., the nation’s biggest insurer, rallied 4.5 percent. China Construction Bank Corp. advanced 2.5 percent.
Aluminum Corp. ADRs increased 6.6 percent to $11.69.
While bank loans rose last month, the slowdown in the economy will damp business demand for borrowing, according to Michael Wang, a strategist at Amiya Capital LLP in London.
“If there aren’t many opportunities, a lot of the lending is just used to refinance existing loans, not so much to invest in new projects,” Wang said by phone on Feb. 13. “So it’s not such a positive environment for banks.”
The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the largest U.S. exchange-traded fund that tracks mainland Chinese stocks, rose 5.9 percent to $35.67 in its biggest weekly gain in two months. The iShares China Large-Cap ETF advanced 2.2 percent to $42.98.
“If they’ll do more easing, and people start to believe that growth has stabilized and perhaps is moving higher, that will bode well for the stock market,” Greenwood Capital’s Todd said.