The Long Banks Trade

It was a controversial trade, especially for any trader who has been through the QE in Europe.

The banking sector has been the best performing sector in China over the past 2 years as:
- Low investors positioning and valuation at very depressed levels,
- Improving NPL level, offsetting somehow the rates spread decline,
- No hard stimulus announced such as 2008/09 which was a headwind for banks for more than a decade,
- Goverment policy towards quality over quantity and targetting the financial stability and prevent any major default,
We are seeing the second leg of the trade as the Trump's TACO and the stabilisation of the economy are likely to translate into stable rates spread going forward => Limited downgrades due to pressure on interest rates.

According our screen (>40 banks listed in Mainland China) :

Top picks among mid or big banks: Bank of Hangzhou (杭州银行), Bank of Chengdu (成都银行), Bank Of Jiangsu (江苏银行)
We are adding Bank of Ningbo (宁波银行), which despite its high exposure to real estate and exports to US, offers significant growth and upside.

Top picks among small banks: Changshu Rural Commercial Bank (常熟银行), Jiangyin Rural Commercial Bank (江阴银行)