While China’s banking sector is often considered both megalithic and monopolistic, there are actually over 4,000 small lenders operating in the giants’ shadows. U.S. traders can even get direct exposure to a few.
The top tier of Chinese bank stocks traded on Wall Street are behemoths, accounting for a full $650 billion in market capitalization between them — 30% more than the top four U.S. banks put together, and far bigger than most of the world’s emerging markets.
Among the giants, the strategic nuances that distinguish Agricultural Bank of China (ACGBY, quote) or Bank of China (BACHY, quote) from China Construction Bank (CICHY, quote) and Industrial & Commercial Bank of China (IDCBY, quote) are going to make a huge impact on the way they compete and grow in the long term.
But for U.S. retail investors in the here and now, it really boils down to the notion that all four institutions are as close to being “too big to fail” as anything in Asia, much less the rest of the world.
A catastrophe for one would probably force Beijing to bail out all four, while anything short of a market crash would be rolled into business as usual.
Another way to say it is that it takes a lot of bad news to move a $100 billion needle, which is what BACHY — the smallest and most vulnerable of these stocks — really is.
On the other hand, the incoming Chinese government has made it clear that any stimulus operations they put in place will target small businesses and the relatively niche-oriented institutions that cater to them.
The logic here is that the Big Four are already big enough. Unlike the U.S. TARP banks that got most of the bailout money here after the credit crunch, the only handout these banks are likely to see will come in the form of lower interest rates — and then, only after small lenders have had their turn.
In that event, three very obscure Chinese banks that trade in the United States may become exciting. The biggest — China Merchants (CIHKY, quote) and Bank of Communications (BCMXY, quote) — are only worth half of what BACHY currently commands on the open market, or barely a quarter of gigantic IDCBY’s market cap.
All are cheap on a fundamental basis, like their larger counterparts trading at maybe 5 to 7 times earnings.
Right now, none are what you’d call “liquid.” BCMXY hasn’t actually moved in two weeks, but CIHKY and CMAKY have started trading in small spurts to clear turnover of $60,000 or so a day.
If Beijing really wants to target the small end of the banking industry, speculators might move the entire sector around, but these are the names that will see the material impact first.