Amidst the chaos of sliding markets, at least one – very big – company had a very good day. The Industrial & Commercial Bank of China, until Thursday the worst-performing stock on China’s 300-strong benchmark index, rose by a record 9.8 per cent in Shanghai to become the world’s fourth-biggest company, reports Bloomberg.
The stock closed at 6.37 yuan, increasing the Beijing-based bank’s market value to 1,970bn yuan ($261bn) and leading a rally among bank shares in China. Investors considered banks cheap relative to earnings after they trailed the benchmark index, with financial companies making up eight of the 10 worst performers on the CSI300 Index as of Wednesday, says Bloomberg.
The valuations reflect a Chinese share rally that created six of the world’s 30 biggest companies, with ICBC eclipsing Citigroup and AT&T – and closing in on Microsoft, which has a market value of $277bn, according to Bloomberg.
Chinese individuals are putting more of their $2,200bn of savings into the stock market, closed to most foreigners, drawing a warning from central bank governor Zhou Xiaochuan that a bubble is forming.
The market is “so dependent on retail sentiment inside China because so few international funds have access to the shares, which means it tends to overshoot,” Shane Oliver, who helps manage $83bn at AMP Capital Investors in Sydney, told Bloomberg. “The ride’s going to be very volatile because the authorities are very keen to prevent it getting too far out of hand.”
One billion ICBC shares changed hands in Shanghai on Thursday – more than 2.5 times the daily average for the past six months, while Bank of China, the nation’s second biggest bank, advanced 7.5 per cent and China Merchants Bank gained 3.4 per cent.
ICBC’s shares trade at 35 times most recent earnings, while Bank of China trades at 32 times. That compares with an average price-earnings ratio of 49 times for China’s CSI 300 Index, notes Bloomberg. By comparison, the S&P500 Index trades at 18 times, with Citigroup, formerly the world’s biggest bank by value, at 12 times.
And just one more statistic to make western banks really envious: ICBC’s profit growth averaged 30 per cent in the past three years, compared with 9 per cent for Citi and 18 per cent for HSBC.
“On a valuation basis, Chinese stocks are overdone,” said Ronald Chan, chief investment officer of Asian equities at Fortis Investment Management in Hong Kong. But, he adds, “China is not about valuation, it’s about liquidity, especially in a market where people are discouraged to buy property and rates have been so low.”