China Traders Bet Big on a Lagging Bank Stock in Hong Kong

(Bloomberg) -- It’s trading near its lowest levels since 2016 and has lost $44 billion in value since an April peak -- but mainland investors can’t seem to get enough of China Construction Bank Corp.

The Hong Kong-listed shares of the lender, one of China’s big four state-controlled banks, have seen mainland inflows of HK$6.2 billion ($790 million) over the past 19 sessions through Aug. 14, based on the latest data compiled by Bloomberg. That’s more than 17% of Chinese investors’ total spending during the buying streak.

A low valuation and healthy dividend yield make it attractive, said Terry Sun, a Hong Kong-based analyst with CMB International Securities Ltd. China Construction Bank’s A shares traded at about a 40% premium over the Hong Kong-listed shares last week, the biggest gap among the big four lenders.

China’s central bank introduced a revamped market benchmark rate this week aimed at lowering borrowing costs for households and companies to support the economy. While that’s seen to bring down industry rates, Sun expects the bank’s net interest margin to be more stable than peers, and says its large proportion of retail loans will help shield it from the impact.

Personal banking contributed to nearly 40% of China Construction Bank’s revenues for last year, the highest ratio among the big four lenders, according to data compiled by Bloomberg. The stock rose as much as 1.4% in Hong Kong before paring the gain to 0.7% Wednesday.

Hong Kong was the world’s worst-performing major stock market over the past month, roiled by weeks of protests, a weakening yuan and the fallout from the China- U.S. trade war. That has helped bring valuations on the Hang Seng Index down towards the lowest since late 2016, encouraging the buying streak from mainland investors.

China Construction Bank traded at a record low of below 0.64 times book value earlier this month, and its estimated dividend yield is at 6.2%, higher than that of Industrial & Commercial Bank of China Ltd., the nation’s biggest lender and another favourite of mainland investors.

Further upside is expected in the coming months, with earnings to offer encouragement, said Wang Zhen, an analyst with UOB-Kay Hian Holdings Ltd. “As an industry leader, the bank has strong ability to adapt to and withstand the unfavourable macro-environment. The stock should perform well in the coming months.”

--With assistance from Jun Luo.

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net;Mengchen Lu in Shanghai at mlu157@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Charlie Zhu

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With assistance from Bloomberg