Chinese financials’ earnings growth set to outpace wider market
Optimism on bank stocks is rising, as improved bottom lines bolster the chance for better returns for investors
[BEIJING] China’s financial sector is on track to outpace the broader market’s earnings growth, with forecasts for the nation’s banks and insurance firms climbing steadily since August.
Estimated earnings growth for Chinese financial stocks listed in the MSCI Emerging Markets Index has climbed to 3.2 per cent while that for Chinese shares overall has slumped to 1.7 per cent, Bloomberg Intelligence (BI) data shows.
The nation’s profits overall have been hit by US tariffs and sluggish spending among domestic consumers, though the outlook has started to brighten. Meanwhile, investors betting on an easing of trade tensions and improvement in the domestic economy have driven gains in the stock market, with the MSCI China Index up 36 per cent this year.
Insurers are leading earnings upgrades as the Chinese reporting season reaches its peak on Thursday (Oct 30), underpinned by equity gains. Lenders too are seeing a brighter outlook as margin pressure eases, fee income recovers and favourable policy measures support growth, said Morningstar analyst Iris Tan.
China Life Insurance, the nation’s largest life insurer by market share, is set to report an increase in net income for the first nine months of as much as 70 per cent on Thursday. Ping An Insurance (Group) on Tuesday posted an earnings rise of 11 per cent for the same period, supported by a strong stock market and expanded policy sales.
The insurance group is expected to deliver standout quarterly results, “with all reporting over 30 per cent year-on-year net earnings growth in the quarter, driven by favourable equity markets”, Morgan Stanley analysts, including Rick Zhao, wrote in a note.
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“For life insurers, their third-quarter new business value is also very strong, partly due to pulled-forward demand prior to pricing changes to reflect lower interest rates,” said BI analyst Steven Lam. Signs of stabilisation of long-term bond yields in China could bode well for these companies too, he added.
Investors have been betting on good results for the subsector. A gauge of Chinese insurers listed in Hong Kong has gained 63 per cent this year, more than double the gain in the Hang Seng China Enterprises Index.
Major lenders, including Industrial & Commercial Bank of China (ICBC), China Construction Bank (CCB), and Agricultural Bank of China (AgBank), are also seeing signs of improvement, with an outlook in part hinging on China’s plans to boost the economy. Bank of China reported 5 per cent net income growth earnings on Tuesday as the lender managed to stabilise its net interest margin.
Optimism on bank stocks is rising, as improved bottom lines bolster the chance for better returns for investors.
“We see good opportunities in banks in the fourth quarter, supported by upcoming dividend payments, stable rates, rebound in M1 and industrial corporate profits,” Morgan Stanley analysts, including Richard Xu, wrote in a note.
Investors have been using options to position ahead of earnings, some of them taking longer-term bets. As banking shares climbed in recent weeks, so did the cost of hedging. Protection prices are now near the highest they have been over the past year for ICBC, CCB and AgBank, whose shares closed at a record high on Tuesday.
Meanwhile, traders are pricing in more earnings-day volatility than in the past for shares of firms including China Life and Citic Bank, while they see smaller moves for ICBC. BLOOMBERG
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