ICBC’s Biggest Surge in 3 Years Bodes Well for Hong Kong Stocks

(Bloomberg) -- For some investors, Chinese bank shares in Hong Kong finally became cheap enough to buy.

Industrial & Commercial Bank of China Ltd. closed 5.7% higher on Monday, its best gain in three years, after trading at the biggest discount to its Shanghai shares since early 2018. Its mainland shares only rose 1%.

ICBC’s Hong Kong shares had plunged 33% this year through Friday, twice the loss of their mainland peers, as the Chinese government called on lenders to forgo profits to help the economy recover from the coronavirus pandemic. Global distaste for Chinese banks was such that ICBC slashed a planned bond sale by more than a third last month.

Analysts struggled to immediately explain Monday’s outperformance. The gains were part of a broader rally ahead of President Xi Jinping’s trip to the southern city of Shenzhen this week, where he is expected to make a speech laying out further reforms to key industries and discuss greater Hong Kong-Shenzhen cooperation.

It may be that bolstering the nation’s beaten-down lenders offshore through buying their shares is part of a propaganda drive ahead of his trip -- as if often seen before key events in China. Or it may be that shares had just become too cheap not to buy. Mainland-based funds currently hold almost 28% of ICBC’s Hong Kong-listed shares, according to data from the city’s stock exchange.

Either way, the gains may point to a sustained uptrend in Hong Kong equities if mainland capital starts to flow in greater amounts into Chinese banks. ICBC is the biggest drag on the Hang Seng China Enterprises Index this year, followed by China Construction Bank Corp. -- which jumped 5.6% on Monday. Its Shanghai shares gained 1.5%.

The index of Chinese shares in Hong Kong is down 12% in 2020, versus an 18% advance for the CSI 300 Index of shares in Shanghai and Shenzhen. That would be the widest gap for any full year since 2014.

©2020 Bloomberg L.P.