Industrial & Commercial Bank of China logo is seen outside a branch in Beijing. Chinese banks are emerging as the safest bets amid the wildest trading by the nation’s stocks since the global financial crisis.

Bloomberg/Hong Kong

Chinese banks are emerging as the safest bets amid the wildest trading by the nation’s stocks since the global financial crisis. Although these days, safety in China is relative.
A measure of mainland financial companies outperformed the market for six days through Thursday, the longest stretch since January 2013, and volatility compared with the broader gauge is the lowest in a year. Ayush Nagaraj, a sales trader at Sanford C Bernstein & Co, says chart patterns suggest gains to come.
“From a technical perspective it shows that financials are coming out of a downtrend and that momentum is strong and to the upside,” Nagaraj said. “They are the bright spot.”
China’s banks have turned from the nation’s biggest laggards into the best performers as investors flee the “new economy” shares that led the world-beating rally through June 12. Financial stocks stand to benefit most from monetary easing and state-backed investment firms wading into the equity market, according to Forsyth Barr Asia.
A gauge of financial stocks on China’s CSI 300 Index fell 17% through Thursday since the rout began almost three weeks ago, compared with losses of more than 29% for technology and industrial companies. Bigger banks are outperforming by more: Industrial & Commercial Bank of China, the nation’s largest lender by market value, was little changed, while Bank of China slipped 1.8%.
As the CSI 300 gauge of China’s larger companies tumbled 3.4% Thursday, financials were the best performers among the 10 industry groups with a 0.4% drop. A measure of 30- day volatility on the gauge of banks, insurers and property companies was 55.2, the lowest relative to the broader index since June 2014. The gauge of price swings for the CSI 300 rose to the highest since 2008.
Financial shares slid 4.6% yesterday, as the CSI 300 tumbled 5.4% to cap a 27% three-week slump.
“China financials, especially banks, are beneficiaries of looser monetary policy but more importantly their equities are targets of direct government market intervention,” said Bill Bowler, a sales trader for Hong Kong and China at Forsyth Barr Asia. There’s speculation that Central Huijin Investment, a unit of China’s sovereign wealth fund, has been buying exchange- traded funds to bolster the market, he said.
An e-mail to Huijin was not immediately answered. ICBC jumped 5.8% Thursday and PetroChina Co, the nation’s largest company by market value, rallied 8.8% amid speculation government linked funds were buying heavy-weighted stocks, according to Kenny Tang, chief executive officer of Jun Yang Securities Co in Hong Kong.
Financial companies won’t be immune to the sell-off in markets. Banks and brokers may have to share margin-loan losses, David Cui, head of China equity strategy at Bank of America Corp, said Tuesday.
Margin debt on the Shanghai Stock Exchange fell to 1.33tn yuan ($214bn) on Wednesday for an eighth day of losses, the longest stretch of declines since the city’s bourse began to compile the data in March 2010.
Momentum indicators are showing bullish signs for banks, while the ratio of the financials gauge to the broader measure broke above its six-month downtrend on Thursday, data compiled by Bloomberg show.
Invesco has been buying banks and property developers on their reasonable valuations. The financial stock index trades at about 10 times estimated earnings, compared with 15 times for the CSI 300.
“We are looking at some stocks with fair value,” Chan said. “If investors are dedicated to China, you need protection there. I personally like banks as policies prefer the sector.”