Stock Market Interpretation: Equity Of Chinese Funded Banks Becomes A Hot Potato For Foreign Capital

Following Bank of America and Goldman Sachs, Citigroup is the latest foreign bank to join in the collective selling of shares in Chinese funded banks. But it may not be the last. The "only child" of HSBC has attracted much attention.

The previous article on Wall Street mentioned that Citigroup is negotiating to sell its 20% stake in China Guangfa Bank, and the transaction may be concluded in the next few months. At the beginning of this month, Deutsche Bank said that it might sell its 21.9 billion yuan (US $3.4 billion) stake in Huaxia Bank.

Although the request for additional capital has led foreign banks to sell their shares in Chinese funded banks, HSBC has not given any hint that it plans to sell its 19.9% stake in Bank of Communications, instead "increasing" its stake in China. HSBC said it would add 4000 jobs in the Pearl River Delta in the next three to four years.

Ma Kunpeng, an analyst with Guojin Securities, believes that the deep cooperation between HSBC and the Bank of Communications looks "unbreakable".

　　 HSBC In 2004, it invested 14.461 billion yuan in Bank of Communications and obtained 19.9% of the shares, which was the largest transaction for foreign banks to participate in mainland commercial banks at that time. However, due to the economic slowdown and rising non-performing ratio, the market expects that the profit of Bank of Communications will decline this year.

Bloomberg statistics show that the world's major banks, including Bank of America and Goldman Sachs, have stripped at least $14 billion of Chinese bank shares since 2012. For example, Hang Seng Bank held by HSBC sold 5% Industrial Bank this year shares ， BBVA settled the shares of CITIC Bank.

"HSBC is different because Asia and China are the two Globalization strategy It's a big part of. " Cao Zhu, an analyst with Guotai Junan Securities, told Bloomberg. "HSBC's shareholding in BOCOM has brought it considerable dividend income, customer base and improved its brand awareness."

Stuart, CEO of HSBC Gulliver said this month that he is still optimistic about China's economy and will increase investment in China. Bank of Communications plans to ask HSBC to nominate a vice chairman of the board of directors. Bloomberg said in August, citing people familiar with the matter.

The consensus view of the market on China's banking industry is that with the growth of China's loan growth and the current situation of China's economic downturn, both large banks and joint-stock small and medium-sized banks, the rate of bad debts and bad debts will rise sharply or become a trend in the future, which will cause their concern about the future profitability of China's banking industry.

"Global banks are cutting unnecessary positions, otherwise these banks cannot concentrate limited resources on core businesses." Cao Zhu, an analyst with Guotai Junan Securities, said that selling is not a bad move, because foreign banks "have harvested the best time in China's banking industry."

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The People's Bank of China announced that, from October 24, 2015, it would lower the benchmark interest rate of RMB deposits and loans of financial institutions, and at the same time lower the RMB deposit reserve ratio of financial institutions. Among them, the benchmark one-year loan interest rate of financial institutions was reduced by 0.25 percentage points to 4.35%; The benchmark one-year deposit rate was lowered by 0.25 percentage points to 1.5%; Other benchmark interest rates for loans and deposits of various grades, and the People's Bank of China's loan interest rates for financial institutions shall be adjusted accordingly; The interest rate of individual housing provident fund loan remained unchanged.

Richard Cochinos of Citigroup said:

The central bank's action today was somewhat unexpected, but the market was not totally unpredicted. We believe that easing is China's systematic and controlled response to the slowdown in economic growth, rather than a response to the impact of the new economy.

One day after the dovish stance of the European Central Bank, the People's Bank of China cut interest rates by 25 basis points and the deposit reserve ratio by 50 basis points. It seems that the loose monetary policy has brought about further loose monetary policy. Our economic team has always expected that China will further ease its policies, but it is only a matter of time. Unlike other major central banks, the People's Bank of China has no fixed time to announce monetary policy. But this does not mean that the timing of the PBOC's policy announcement is nowhere to be found. Before today, the Central Bank announced six reductions in reserve requirements and interest rates - the most recent on August 25.

This view helps us to explain the G10's indifference to the PBOC's interest rate and reserve ratio cuts. At present, compared with its performance in April, July and August, the performance of AUD/USD and USD/JPY is cold. Obviously, China's monetary stimulus is good for Japan and Australia, but we are also very cautious and do not want to be too optimistic. Today's interest rate cut was announced before the Fifth Plenary Session of the 18th CPC Central Committee. The previous interest rate cut did not reverse the economic slowdown.

In addition, the Fifth Plenary Session of the CPC Central Committee will announce the GDP target for the next five years (currently 7%, expected to be lowered) and other financial plans and targets. It is difficult for the market to follow the price trend until we know the information and the expected benchmark situation in China. The main downward driving force of emerging markets in Asia is weak economic growth and trade. Therefore, we remain cautious. Policy adjustment may weaken the impact of further economic slowdown.