Central Huijin Is Buying Chinese Banks’ Shares

When I was writing that it is probably a little bit too late to start shorting China, I wasn’t aware of the news that China is buying Chinese banks’ shares. But anyway, there you have it.

China’s Central Huijin is buying shares of Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank according to Xinhua:

Central Huijin Investment Ltd, an arm of China’s sovereign wealth fund, bought shares in four major Chinese State-owned banks on the secondary market on Monday, the company told Xinhua.

The four banks include the Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of China (BOC) and China Construction Bank (CCB), according to the company.

The move is aimed at supporting the steady operation and development of major financial institutions and stabilizing their stock prices, the company said.

FT Beyondbrics noted the following, which sounds uber-bullish:

For context, the last time China stepped in publicly to buy bank shares like this was in September 2008. The Chinese market bottomed shortly afterwards.

Of course, I am not hugely impressed. As the Chinese economy slows, asset qualities of banks will deteriorate. Given the lending spree post-financial crisis, we should be expecting increases in NPL going forward that will mean that Chinese banks, sooner or later, will need to raise fresh capital. Buying shares in open market does not increase capital of banks.

And for banks with increasing bad assets in challenging environment, banks’ shares may very well become out-of-the-money call option of banks’ assets.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.