Saturday, 30 October 2010

China's banking stocks... Your next destination?

While Malaysian market is hovering around 1,500 points, a ground survey shows that local investors are skeptical about the sustainability of our market. Bursa Malaysia's website shows that local retail participation is merely at 25% daily.


Maybe, we could look aboard to find some other investing options. And, China's banking stocks could suit investors appetite for the following reasons:-
  1. China was an under-performer this year
  2. China's banks should report better profits
  3. Robust loan demand

Due to the higher interest rate being announced recently, banks of China should experienced expansion of net interest margin for the next few quarters. Although loan growth is moderating now, it was still high, and will continue as long as China's economy is growing. We can't deny that China is the world's engine of growth currently, in which we persist for the next few years, at least.

Will China raise rate again?

Depending how fast and big the housing bubble was, China would continue it's monetary tightening policy going forward. In contrast, Malaysia had raised interest rate 3 times this year, albeit small percentage, China is lagging us although with a more serious property bubble.

However, there are risks involved.
  1. Banks could be facing liquidity problem
  2. Potential of loan defaults
  3. Huge loans allocated to local government's infrastructure projects
In order to minimized risks, investors should favor BIG lenders (pic) and avoid smaller banks, given their greater capital sufficiency.

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