The rally in Chinese financial shares intensified on Monday (May 8), with some banks posting their biggest single-day gains since the country’s 2015 equity bubble after more lenders cut their deposit rates and further progress on state-owned enterprise reform boosted investor sentiment.

The CSI 300 Financials Index jumped for a fifth consecutive session on Monday, adding nearly US$159 billion in market value. The gauge is poised to hit its highest level since April 2022. The gains were led by state-owned lenders including China Citic Bank Corp as well as Bank of China, which hit the 10 per cent limit-up for the first time since July 2015. 

The strong performance came after three nationwide lenders lowered deposit rates, following a similar move by smaller rivals last month as they battle shrinking margins. Chinese banks have been under pressure to maintain profitability as policymakers push for state lenders to provide cheap loans to small businesses and home buyers.

Also lifting sentiment was a set of new guidelines over bond issuance for state-owned firms to improve the efficiency of approval process and strengthen supervision control to prevent default risks. The SOE reform theme has gained traction in recent months, helping those shares become the biggest winners in China’s lacklustre stock market.

It’s a “valuation system with Chinese characteristics” story, said Willer Chen, a senior analyst at Forsyth Barr Asia. Some investors are also “seeing value in bank stocks because their valuation is cheap and dividend yields are attractive, despite the shrinking net interest margins and weak Q1 results.”

A gauge of major lenders in Shanghai and Shenzhen was trading at around 0.6 times current book value as at Friday. BLOOMBERG

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