The Shanghai Composite dropped briefly below 2000 again today, a new post-crisis low, and the big four Chinese banks are leading the way. While the H-shares in Hong Kong are holding up, their A-shares counterparts are already below or near the crisis lows. Bank of China, for example, is already well below the 2008 low. ICBC and China Construction Bank are not yet below the crisis low, but as you can see, they are pretty close. Meanwhile, Agricultural Bank of China is well below its IPO price.
The post-crisis credit expansion has led to worries that sooner or later Chinese banks will be facing problems of increasing non-performing loans. Under some severe scenarios, problem loans could more or less wipe out banks’ equity capital. Although the problems remain below the surface for now, we all well understand that the reality is quite a bit worse than what banks are currently reporting, and from this point onwards, we will only see asset quality of Chinese banks deteriorate.
So here you have Chinese banks shares, performing exactly like banks which are expected to face some trouble.