Immunity from external volatility is benefiting Chinese lenders as investors rush to safety amid a spiraling global banking crisis.
(Bloomberg) — Immunity from external volatility is benefiting Chinese lenders as investors rush to safety amid a spiraling global banking crisis.
The CSI 300 Financials Index has gained about 0.3% so far this week, beating a more than 3% decline in an index of regional counterparts, while a gauge of US lenders has lost 12%. Gains in state-owned lenders have stood out, with shares of Bank of China Ltd. in Shanghai rising for a fourth day on Thursday, reaching their highest level since July 2020.
Analysts point to state-owned lenders’ relatively stable asset quality and strong government support for their outperformance. That has cushioned mounting worries about stress in the global banking system given Credit Suisse Group AG’s troubles and the sudden collapse of Silicon Valley Bank.
“State-owned enterprises are by definition backed by the state and too big to fail,” said Marvin Chen, an analyst at Bloomberg Intelligence. “China has much more direct oversight and ownership of the financial system,” which should support the banking sector in case of any spillover risks, he added.
The People’s Bank of China on Wednesday vowed to prevent systemic financial risks and ensure prudent operations. Authorities’ crackdown on shadow banking in recent years, as well as the nation’s overhaul of its financial regulatory framework, have helped mitigate potential risks in the banking system, the official Securities Times touted in an article.
A low correlation to the global rate environment and limited sovereign exposures are helping shelter Chinese banks from the brewing storm, according to HSBC Holdings Plc analysts including Gary Lam. “As global investors seek safety, large state-owned banks could become the preferred choice due to their track record as stable dividend payers with 8%-9% yields,” they wrote in a Tuesday note.
As China extends its accommodative monetary policy, there are hopes of further required reserve ratio cuts which would “allow banks to expand lending and ease liquidity conditions after the banking sector stress seen in developed markets,” said Bloomberg Intelligence’s Chen.
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