[ET Net News Agency, 7 December 2018] HSBC Global Research identified three fundamental
factors that can significantly affect the China banking sector outlook in the current
90-day trade truce between the US and China.
First, deposit growth, especially corporate deposits - weak deposit growth year-to-date
challenges banks' ability to sustain credit growth next year.
Secondly, added clarity on three loan segments: consumer non-mortgages, manufacturing,
and commodities-related lending; these segments could face pressure on volume growth and
asset quality.
Lastly, sustainability of asset growth - as a positive, pace of asset growth is in an
appropriate range; total asset growth will likely be less than 10% for 2018 YoY,
organically generated capital will be sufficient to support the growth; dividend outlook
is stable.
HSBC expects China Merchants Bank (CMB)(03968)(Buy, TP: HK$38.7) to be the stock of
choice if trade and the macro situation improves. CMB offers the highest loan loss
provision, ahead-of-peers CET1 ratio and superior ROE; this quality will be particularly
attractive for international investors that focus on company fundamentals.
Meanwhile, if trade and the macro situations don't improve, it expects Bank of China
(BOC)(03988)(Buy, TP: HK$4.70) to outperform as a relative "safe haven" on the back of its
attractive valuation, solid balance sheet quality, and internationally diversified
exposure.
HSBC also likes Industrial and Commercial Bank of China (ICBC)(01398)(Buy, TP: HK$7.80)
and China Construction Bank (CCB)(00939)(Buy, TP: HK$9.50), stronger-than-peers capital
position and share price underperformance versus peers in 2H 2018 are especially
attractive for dividend-focused and value-focused investors. (KL)