Central Huijin, China’s sovereign fund under the state council, announced to increase stakes in China’s big four banks and its intention to continue to do so in the next six months.
Although this round of buying only increased Huijin’s stakes in the big four banks by 0.1% each and only totaled 477mil RMB, its a recognition of very cheap valuation in China’s banking sector. For instance, as I show in chart, $ICBC(01398)$ is trading at close to its all-time-low price, 3.4x P/E and 10% dividend yield. It’s hard to deny the value it has to offer.
Historically there had been six other times that Huijin bought to support the market.
The buying on September 18, 2008 after Lehman collapse was a resounding success. The Chinese market rebounded 9.5% the next day, and soon found its bottom in November 2008. The buying in 2015 during the market crash, however, was early. But the point then was to stabilize the market as it plunged, and Huijin was acting as the buyer of last resort.
It’s the reason why Huijin is widely regarded as China’s stabilization fund, and the recent call for setting up a stabilization fund sounds redundant. Huijin’s buying sends strong signal of the topdown view , and tends to help to shore up market confidence.
Last night, the Chinese ADRs reacted positively to the news. Even for a financial investment, there should be profits here for Huijin.
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