Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

After lifting the medium-term lending facility rate by 10 basis points on Jan. 24, the People's Bank of China raised the overnight short-term lending facility rate by 35 basis points on Feb. 3. Other SLF rates and reverse repo rates were raised by 10 basis points. In contrast to market concerns, we do not believe the 35-basis-point increase in overnight SLF is a strong signal to raise future funding cost by this amount. Instead, this reflected PBOC's higher tolerance for short-term interbank-rate volatility, as SLF is regarded as the ceiling of the interest-rate corridor. We are maintaining our fair value estimates for the Chinese banks we cover, as we believe PBOC’s move is cautious, with an interest-rate hike of 10 basis points.Given the dual-track interest-rate system, where rates in the largely liberalized money and bond market rates fail to transmit to rates in the traditional bank lending and deposit market, we believe the move will have much less of an impact on the real economy than the lending-rate hike. We believe the impact on the industry will be negative, as it increases inter-bank funding rates, especially for banks which recorded robust asset expansion via inter-bank market funding and bond raising, such as rural and urban commercial banks, smaller joint-stock banks, and policy banks. Deposit rates are likely to be affected, but the upward pressure is mild, as banks are largely coordinated. As the largest inter-bank lender, large banks are likely to benefit from higher market rates, partially offsetting the impact of tighter liquidity. Inter-bank funding represented about 20% and 40% of total liabilities for the Big Four banks and nine listed joint-stock banks, respectively.Some impacted banks: <a href="https://www.smartkarma.com/entities/656" target="_blank" data-smartkarma-citation="entities:656:1">Bank Of China Ltd (H) (3988 HK)</a>, <a href="https://www.smartkarma.com/entities/45" target="_blank" data-smartkarma-citation="entities:45:1">China Construction Bank (H) (939 HK)</a>, <a href="https://www.smartkarma.com/entities/1119" target="_blank" data-smartkarma-citation="entities:1119:1">Ind &amp; Comm Bk Of China (H) (1398 HK)</a>, <a href="https://www.smartkarma.com/entities/1120" target="_blank" data-smartkarma-citation="entities:1120:1">Agricultural Bank Of China Limited (1288 HK)</a>Analysts: Iris Tan, CFA and Michael Wu, CAIA

After lifting the medium-term lending facility rate by 10 basis points on Jan. 24, the People's Bank of China raised the overnight short-term lending facility rate by 35 basis points on Feb. 3. Other SLF rates and reverse repo rates were raised by 10 basis points. In contrast to market concerns, we do not believe the 35-basis-point increase in overnight SLF is a strong signal to raise future funding cost by this amount. Instead, this reflected PBOC's higher tolerance for short-term interbank-rate volatility, as SLF is regarded as the ceiling of the interest-rate corridor. We are maintaining our fair value estimates for the Chinese banks we cover, as we believe PBOC’s move is cautious, with an interest-rate hike of 10 basis points.Given the dual-track interest-rate system, where rates in the largely liberalized money and bond market rates fail to transmit to rates in the traditional bank lending and deposit market, we believe the move will have much less of an impact on the real economy than the lending-rate hike. We believe the impact on the industry will be negative, as it increases inter-bank funding rates, especially for banks which recorded robust asset expansion via inter-bank market funding and bond raising, such as rural and urban commercial banks, smaller joint-stock banks, and policy banks. Deposit rates are likely to be affected, but the upward pressure is mild, as banks are largely coordinated. As the largest inter-bank lender, large banks are likely to benefit from higher market rates, partially offsetting the impact of tighter liquidity. Inter-bank funding represented about 20% and 40% of total liabilities for the Big Four banks and nine listed joint-stock banks, respectively.Some impacted banks: Bank Of China Ltd (H) (3988 HK), China Construction Bank (H) (939 HK), Ind &amp; Comm Bk Of China (H) (1398 HK), Agricultural Bank Of China Limited (1288 HK)Analysts: Iris Tan, CFA and Michael Wu, CAIA

Tighter Monetary Policy to Facilitate Financial Deleveraging in China

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

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Technical Analysis

FTSE China A50 Index / Technical Analysis

Strategic view: Less bullish in late stages of corrective rally from early 2016. New high to mark a macro cycle peak.Tactical posture: Bullish for reach to minor new chart highs. Bias: Momentum concerns, copper stall cycle, Trump/trade friction, protectionist measures are all risk points for China into the summer months. 10,350 is the inflection hurdle to clear to challenge the 10,700 high zone.RSI bear divergence and the fact we are moving into a well-defined cycle peak is a high confidence set…

Strategic view: Less bullish in late stages of corrective rally from early 2016. New high to mark a macro cycle peak.Tactical posture: Bullish for reach to minor new chart highs. Bias: Momentum concerns, copper stall cycle, Trump/trade friction, protectionist measures are all risk points for China into the summer months. 10,350 is the inflection hurdle to clear to challenge the 10,700 high zone.RSI bear divergence and the fact we are moving into a well-defined cycle peak is a high confidence set…

Final Innings of China Rally – Fresh Highs for a Macro Crest

China

The FTSE China A50 Index includes the largest 50 A Share Chinese companies by total market cap. 

FTSE China A50 Index (XIN9I INDEX)

Tighter Monetary Policy to Facilitate Financial Deleveraging in China

After lifting the medium-term lending facility rate by 10 basis points on Jan. 24, the People's Bank of China raised the overnight short-term...

Morningstar, Inc.

Final Innings of China Rally – Fresh Highs for a Macro Crest

Strategic view: Less bullish in late stages of corrective rally from early 2016. New high to mark a macro cycle peak.Tactical posture: Bullish for...

Thomas Schroeder