China Bank Stocks Turn Into Latest Best Hope for Investors

  • Financial shares jump most in two years on policy easing
  • MSCI China has relied on tech shares to rally this year

XacBank's Stent on Transformation of Chinese Banks

A surge in Chinese bank stocks is taking the pressure off technology giants to keep this year’s rally going.

The MSCI China Financials Index jumped 4.9 percent on Tuesday, the most in more than two years, after the People’s Bank of China said it would reduce the amount of cash that banks must hold as reserves from next year. The gains came after the gauge of financial shares traded at its lowest level in a decade relative to the MSCI China Index.

With just two stocks -- Tencent Holdings Ltd. and Alibaba Group Holding Ltd. -- accounting for almost half the 46 percent advance by the MSCI gauge this year, the index is increasingly vulnerable to any reversal in tech companies. Such a risk was highlighted just last week when a global technology selloff helped drag the MSCI China Index down as much as 3 percent in just one day.

The divergent performance is even more marked when compared against the MSCI China’s previous peak in April 2015. While gauges of property and technology shares have surged more than 60 percent since then, six of the 10 industry groups are still underwater. Financials are 16 percent lower, while energy and industrial shares are more than 30 percent below.

The MSCI China Financials Index rose 0.7 percent at 4:09 p.m. in Hong Kong, with heavyweight Industrial & Commercial Bank of China Ltd. extending Tuesday’s 7.9 percent surge.

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