China Sovereign Fund Buys Bank Shares

Central Huijin raises stakes in nation’s four biggest banks as valuations drop.

China’s state-run Central Huijin Investment Ltd. began buying shares in the nation’s four biggest banks after valuations dropped below levels reached during the global financial crisis.

Central Huijin started acquiring existing stock in Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd. yesterday, according to a statement on its website. The fund will continue with “related market operations,” it said, without providing details on how much it will invest and whether it will buy the shares in Hong Kong or Shanghai.

The MSCI China Financials Index is trading at 6.3 times estimated earnings, below the 6.9 reached during the 2008 crisis, after slumping on speculation defaults will rise as the economy slows. The gauge lost 36 percent this year as China’s property market shows signs of cooling and concern grew that $1.7 trillion of local-government financing will lead to bad debts.

“The move is a gesture to demonstrate support,” Ivan Li, deputy head of research at Kim Eng Securities Hong Kong Ltd., said by telephone yesterday. “Some of these banks still want to get funding from capital markets, but the low share price would make that difficult to achieve.”

Huijin bought 14.6 million shares in ICBC, 7.38 million shares of Construction Bank, 39.1 million shares in AgriBank and 3.5 million shares in Bank of China on the Shanghai exchange, the four Beijing-based lenders said in separate statements to the Hong Kong stock exchanges yesterday.


 
Further Purchases
Those purchases would have cost Central Huijin about 197.5 million yuan ($31.1 million), based on yesterday’s closing prices for the lenders’ Shanghai-listed shares, according to data complied by Bloomberg. The banks and Huijin didn’t disclose the price the shares were acquired at.

While the purchases didn’t significantly increase Huijin’s holdings of 35.4 percent, 57.1 percent, 40 percent and 67.6 percent in the four banks respectively, the fund plans to make further acquisitions over the next 12 months, the lenders said.

A unit of the China Investment Corp., Central Huijin sold 40 billion yuan ($5.9 billion) of bonds in August as it increased investment in banks, according to the website of Chinabond, the official bond clearing house. The Beijing-based investment company, set up in 2003, became a subsidiary of CIC in 2007, when the sovereign wealth fund was established.


 
Bolstering Confidence
Huijin made a similar move to bolster shares of Chinese banks in September 2008, immediately after Lehman Brothers Holdings Inc. collapsed and credit markets froze. The government at the time said it would buy shares in the three largest banks, helping stoke a 21 percent rally in the Shanghai Composite Index in the following week, according to data compiled by Bloomberg.

China’s home transactions fell during the week-long public holiday after residential prices posted their first monthly decline in a year, according to Soufun Holdings Ltd., the country’s biggest real estate website owner. The decline in sales volume last week, traditionally a peak period for developers, may mark a turning point for the property market.

The MSCI China Financials Index tracks 34 stocks including banks, insurers and property developers.

Emerging-market stocks are “cheap” and Pacific Investment Management Co. is buying in China after the nation’s shares tumbled this year, Maria Gordon, an emerging-market equity-fund manager at Pimco, said in an interview yesterday.



 

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