China Investors Snap Up Hong Kong Shares of Two Homegrown Banks

(Bloomberg) -- Two of China’s biggest banks have suddenly become the favorite Hong Kong equities of mainland investors.

Shares of Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. account for more than half of all purchases via the trading links with Shanghai and Shenzhen from May 14 to June 18, according to data compiled by Bloomberg. Investors bought a net HK$14.1 billion ($1.8 billion) of ICBC shares and HK$9.5 billion of CCB stock. They had purchased only HK$2.5 billion of ICBC from the start of the year to mid-May and were net sellers of CCB.

The buying spree has placed the lenders among the top performers on the benchmark Hang Seng Index in the period since mid-May as China’s trade dispute with the U.S. worsened. Mainland investors now own more than a fifth of ICBC’s free floating in the city, the most since at least March 2017. Ping An Insurance (Group) Company of China Ltd. led the buying -- its units spent a combined HK$4.9 billion on 873 million shares, according to exchange data.

"Investors’ risk appetite has fallen given the jitters over the trade war, so they prefer stocks with relatively low risk," said Castor Pang, head of research at Core Pacific-Yamaichi International in Hong Kong. "Chinese banks are stable dividend payers and they are cheap. Buying in these two banks should continue amid demand for safe investments and low valuations."

The H shares of the other two big four banks, Bank of China Ltd. and Agricultural Bank of China Ltd., haven’t fared as well. Mainland investors bought HK$229 million of BOC shares and HK$879 million of Agricultural Bank since mid-May.

Investors may be cautious about other large lenders such as Bank of China as it has relatively poor fundamentals compared with its peers, according to Capital Securities Corp. analyst Lin Jinghua. It also has more assets valued in other currencies, which exposes it to forex volatility, she said.

©2019 Bloomberg L.P.