(Bloomberg) — Chinese banking stocks are surfing a tide of optimism not seen since the nation’s 2015 equity bubble, as traders look to state lenders to galvanize a long-awaited market rally.
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The CSI 300 Financials Index jumped for a fifth session on Monday to reach its highest level since April 2022, adding $166 billion in market value in the process. The gains were led by state-owned lenders including China Citic Bank Corp. as well as Bank of China Ltd., which hit the 10% daily limit-up for the first time since July 2015.
With China’s reopening trade stalled, Chinese investors are betting on a pledge by Beijing to let state-owned firms have access to more capital and play a bigger role. New guidelines on bond sales by SOEs is seen as another step in the reform as President Xi Jinping reshapes the economy. The frenzied trading has also been attributed to moves by three nationwide lenders to cut deposit rates to boost profit margins.
It’s a “valuation system with Chinese characteristics” story, said Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. Some investors are also “seeing value in bank stocks because their valuation is cheap and dividend yields are attractive, despite the shrinking net interest margins and weak Q1 results.”
For now, much of the gains may be driven by sentiment, rather than fundamentals. Chinese lenders posted a tepid set of first-quarter earnings as they faced deeper margin woes despite being sheltered from the recent global banking jitters. Analysts say the pressure may persist through the year as lending rates are lowered to revive the economy.
Read: China’s Big Banks Post Scant Profit Gains as Margins Shrink (2)
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The dramatic moves on Monday are uncommon for Chinese lenders, which are considered value stocks given they have long traded far below book value and underperformed the broader market. Concerns about property-related bad loans and a long-term structural slowdown of the economy have weighed on the sector.
A gauge of major lenders in Shanghai and Shenzhen traded at around…
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