Bank of China: Emerging market stock of the day

Chinese markets fared well Wednesday thanks to outperformance from banks like Bank of China (BACHY, quote) and property developers.

Image courtesy JHH: http://commons.wikimedia.org/wiki/User:JHH755

Bank of China Shapingba branch in Chongqing municipality

Following a day of sub-par trading on Tuesday, Asian markets rebounded overnight. While Japan (EWJ, quote) was helped by a weaker yen which boosted the country’s numerous exporters, Chinese markets (FXI, quote) were helped by the inclination that the country’s new leaders would implement new policy initiatives to bolster the economy. Hong Kong (EWH, quote) finished up 1.39%, while Shanghai finished up 1.09% as the Mainland index continues to hold the psychologically important 2000 level.

Macroeconomic sentiment improved thanks to housing data from the United States. Housing starts in the world’s largest economy were their highest in four years, indicating that a sustained recovery in this important sector could be on the horizon. In terms of China-specifics, exporters were buoyed by the news as a strong American economy is likely to increase export demand.

In particular, banks and property developers in China performed strongly. The State Administration of Foreign Exchange indicated that the government would lessen restrictions on foreign money coming into the country. According to Bloomberg, “foreign investors will be exempt from needing regulatory pre-approval for opening bank accounts, remitting profits abroad and transferring money between different domestic accounts starting Dec. 17.” Such policy initiatives are an obvious boon to the Chinese banking industry’s titans like Bank of China, as the increased flow of money allows for enhanced profitability.

Technically, Bank of China is in a strong position. The company’s Hong Kong listed shares are trading above its 50, 100, and 200-day moving averages and are only a few percentage points below their 6-month high. If Bank of China’s shares are able to break this resistance, the stock could move much higher, assuming that macroeconomic factors do not deteriorate.

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