Retreats create paradox for bank-stock investors

Recent retreats in China's bullish bank shares have sparked both fear and lust for their buyers, as some rushed to cash in their chips while other daring grunts bought in more.

Bank shares saw the largest single-day loss on Thursday among recent corrections after recording as much as a 25-percent rise since December 2012 when the sector's stock boom started.

On Thursday, the bank index compiled by Shenyin & Wanguo Securities slid 3.71 percent. China Minsheng Banking Corp., shares of which are seen as a barometer for bank stocks, shrank 5.98 percent. The private bank saw its stocks gain 89.01 percent over the past two months.

The seesawing of bank shares during the week ahead of the seven-day Spring Festival holiday, which kicked off on Saturday, has blurred the after-festival market outlook, dividing views for investors.

"Although the rally started to correct itself, I expect the room and time for the adjustment will be limited," said Liang Hao, an analyst at Beijing-based Cinda Securities Co.

For Liang, Minsheng Bank shares haven't encountered any big sell-offs so far, and even during Thursday's plummet, transactions of the bank's shares were not high.

One day before Thursday's massive flight of bank-stock investors, Shanghai-based Haitong Securities again added to its bank stock chips through its Hong Kong subsidiary, which obtained a qualified foreign institutional investors license in 2012. The purchase sent its total investment in 11 bank stocks to 412 million yuan (65.61 million U.S. dollars).

Although holdings of bank shares reached high levels at fund companies, the shares still have much room for increases due to their greater market weight, said Hu bin, a long-time investor.

In striking contrast to widespread losses in other sectors, Chinese banks have been awash with profits during the past few years despite economic headwinds. Minsheng saw its net profits surge 58.81 percent and 34.51 percent year on year in 2011 and 2012, respectively.

But the equity market had failed to award bank-share holders for their choices until last December. At that point, stabilized domestic growth helped rally the long-time undervalued bank board, which led a rebound in the benchmark Shanghai Composite Index from the year's lowest 1,949 points logged on Dec. 4.

"Heavyweights like bank shares have an innate advantage in impacting the market. It's possible that some investors bought bank shares to prop up key index in order to gain from stock futures markets," said an investor, who declined to identified.

Although Yang Ling, an analyst at Beijing-based StarRock Investment Management Co., dismissed the speculation, citing difficulties in finding such capable capital, she said that cyclical stocks may outperform bank stocks after the Spring Festival as the bank-stock valuation has improved.

Retreats of bank stocks undoubtedly impacted both the main index and investor confidence; whether the market rebound will continue may depend more on economic situations and government policies, said Zhang Teng, an analyst at Western Securities Co..

The combined assets of Chinese banks rose 17.7 percent year on year to 131.27 trillion yuan at the end of 2012, slightly lower than the 18.3-percent growth in 2011, official data showed.