Liquidity to buoy rising momentum of Chinese banks: analysts

The economy has rebounded but demand roadblocks are still present.

The momentum that Chinese banks are currently experiencing will likely persist on the back of overflowing liquidity, with the sector possibly gaining from investor rotation and news speculation, according to a Jefferies report.

There have been no changes to fundamentals, with banks still urged to sacrifice profits. The economy has recovered but feeble overseas and domestic demand will still pose challenges, analysts wrote.

Total social financing (TSF)/loan growth surged to 12.5% and 13.2% YoY respectively in May as banks are pushed to lend more. Money is still expected to flow into the property and capital market due to a frail real economy demand. In addition, illegal OTC leveraged lending has risen since May alongside brokerage margin financing and fund new issuance.

“Our strategist believes that investors may rotate into the fiscal/M&A/reform-policy associated sectors and laggards, which will benefit the financial sector,” analysts said.

Moreover, some investors have started asking about the People’s Bank of China’s (PBOC) 25bp cut on relending rates on some loans, but the lower rates may only apply to lower than $284.9b (CNY2t) relending on banks backed by qualified MSE and agricultural loans.

“Some investors speculate on massive broker acquisitions by banks, or lower barrier on margin financing, both unlikely in the short-term, in our view,” analysts wrote.