China’s six largest banks are called in to provide support to the economy under clear instruction from President Xi Jinping with the mandate to provide high-quality economic growth. Industrial and Commercial Bank of China announced on Shanghai Stock Exchange on the 16th of October 2022, that it will provide credit support to the economy. Agricultural Bank of China, Bank of China, and Postal Savings Bank of China also mentioned that they will contribute to the financial strength for the stability of the economy. China Construction Bank and Bank of Communications will step up credit risk management to serve the country better.
The banks are aligned with the government’s policy directions and they have warned of profit squeeze in order to increase lending. In September, China Construction Bank set up a 30 billion yuan fund to finance housing for the ailing property sector. China’s economy is facing geopolitical risk, contraction due to COVID-19 lockdowns, and a failing property sector. There is no doubt with proper control, its property sector will be well supported and the government will not allow this to follow a Lehman Brothers situation. The COVID-19 lockdown is the root cause that affects the economy. However, as a central government, you cannot allow the healthcare sector to crumble due to surging COVID-19 cases. The key turning point will be an improved vaccination rate with improved vaccines in the country.
You can read here an article by Dr. Wealth on the best China banks to buy.
The valuation has become cheaper on 5th November when I wrote this compared to the time Dr. Wealth’s article was published. All four banks are cheaper based on the P/B ratio. The stocks have dividend yields around the range of 10-11%.
ICBC P/B ratio 0.41 => P/B ratio of 0.31
CCB P/B ratio 0.44 => P/B ratio of 0.34
ABC P/B ratio 0.35 =>P/B ratio of 0.30
BOC P/B ratio 0.35 => P/B ratio of 0.28
Conclusion
I am sure China will overtake the USA as the leading country in years to come. There are a lot of geopolitical risks at play with the USA trying to prevent others from overtaking them. President Xi Jinping will take Taiwan back during his lifetime. This remains a potential risk to investors. Taiwanese do not wish to see any war and destruction after seeing what Russia did to Ukraine. Taiwan is just within 20km of distance away from Fujian. War does no good to any country. The relationship used to be better when Ma Ying-jeou was Taiwan’s president but deteriorate when Tsai Ing-wen won the elections in 2016.
I proposed to my wife in Taiwan, it is a special place in my heart as well. I pray that Taiwan will be safe and relationships can be improved. I met a lot of businessmen in Taiwan before, they have business in China, and China and Taiwan are intertwined.
Coming back to the point, I will invest in China bank when the dividend yield increase to around 15%. Even if the dividend yield is cut, it will still become a good dividend play while waiting for things to improve. I ask my parents why won’t invest in China banks when they put fixed deposits with them.
There is always a risk.
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