Chinese Bank Stocks Soar, Adding $166 Billion in Trading Frenzy

(Bloomberg) — Chinese bank shares surged, with some posting their biggest one-day gains since the country’s 2015 equity bubble, after more lenders cut deposit rates and further progress on state-owned enterprise reform boosted sentiment.

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The CSI 300 Financials Index jumped for a fifth session on Monday, adding nearly $166 billion in market value. The gauge was poised to hit its highest level since April 2022. The gains were led by state-owned lenders including China Citic Bank Corp. as well as Bank of China Ltd., which hit the 10% limit-up for the first time since July 2015.

The strong performance came after three nationwide lenders lowered deposit rates, following a similar move by smaller rivals last month as they battle shrinking margins. Chinese banks have been under pressure to maintain profitability as policymakers push for state lenders to provide cheap loans to small businesses and home buyers.

Sentiment was also helped by a set of new guidelines over bond issuance for state-owned firms to improve the approval process and strengthen supervision control to prevent default risks. The SOE reform theme has gained traction in recent months, helping those shares become the biggest winners in China’s lackluster stock market.

It’s a “valuation system with Chinese characteristics” story, said Willer Chen, a senior analyst at Forsyth Barr Asia. Some investors are also “seeing value in bank stocks because their valuation is cheap and dividend yields are attractive, despite the shrinking net interest margins and weak Q1 results.”

A gauge of major lenders in Shanghai and Shenzhen was trading at around 0.6 times current book value as of Friday. That compares with 0.8 times for a Bloomberg index tracking Asian bank shares.

Chinese banks posted a set of tepid first-quarter earnings, as they faced deeper margin woes despite being relatively sheltered from the global banking jitters of recent months. Analysts say the margin pressure may persist through the rest of the year due to prime-rate cuts, loan repricing and lower mortgage rates.

Monday’s dramatic moves were uncommon for Chinese lenders, which are considered value stocks given they have long traded far below book value and underperformed the broader market. Concerns about property-related bad loans and long-term structural slowdown of the Chinese economy have weighed on the sector.

(Updates with more context)