Our view
The market likely has digested the good news: NIM bottomed in 2Q09 and credit
charges remain low. Looking ahead, NIM expansion and fee income growth may
generate earnings upside. We favour banks with these abilities, eg CCB and ICBC.
We also favour high beta names such as BOC and CITIC Bank in this bull market.
Anchor themes
We remain Bullish on the Chinese banking sector, largely based on China’s
economic recovery story, no near-term NPL concerns and reasonable valuations.
The underperformance of Chinese bank shares in recent month is due more to
“sector rotation” and “policy scare” than fundamental weakness, in our view.
Our economist recently initiated a forecast of 9.8% for China’s GDP growth in
2011F, coupled with a 10% GDP growth forecast in 2010F — this strong economic
environment should be supportive to banks’ performance.