Temasek’s Quick Sale Shows Healthy Demand for China Banks
China bank stocks fell on Wednesday after Singapore sovereign wealth investor, Temasek, sold down part of its stakes in two of the mainland’s largest lenders — Bank of China and China Construction Bank. But some analysts say the speed at which the deal was done shows there is still plenty of demand for the stocks and the financial sector over the long term.
"It's very significant that these large placements were taken up so fast. In the case of CCB, it was half an hour; in the case of Bank of China, in under an hour," Jim Antos, bank analyst at Mizuho Securities told CNBC.
China's banking sector has been trading on fear, especially after a report from Moody's on Tuesdaysaid local government debt was much larger than previously estimated. But Antos believes the latest sell-off makes the sector even more attractive.
"We will get to some point — it might be this month, might be next month — that institutional investors who want to own Chinese banks will want to add to their stakes in one or two names," he said.
Antos has a buy rating on shares of the big four banks — Industrial and Commercial Bank of China , China Construction Bank , Bank of China and Agricultural Bank (Agbank). He expects all 4 stocks to rise between 30 to 40 percent over the next 12 months. He notes that even if the shares don’t bounce, the lenders pay a healthy 4 percent dividend.
BNP Paribas also believes now's a good time to accumulate positions in Chinese banks.
"Earnings growth is on solid track, and we believe asset quality will remain steady with concern over local government funding platform being largely exaggerated by the market," Dorris Chen, an analyst at the bank told CNBC.
BNP believes that Chinese policy makers will ease tightening measures only selectively, but given the current price levels the shares are worth buying.
Over the short-term though, Temasek's move could create “heartburn” for some other large investors who want to trim their exposure to Chinese lenders but are unable to get a good price for their stakes, Antos added.
Bank of America, which owns a 10.6 percent stake in CCB will look to sell a large part of its stake, according to Antos, when the lock-up period for that investment ends on August 29. It's now likely to get a lower price for its stake.
In addition, sovereign wealth funds from Kuwait and Qatar may also look to selldown the stakes they acquired in Agbank's IPO, when that lock-up period ends on July 15th, Antos said.