China bubble concern overblown as bank deposits gallop
Surging deposits at China's biggest banks signal the country's equity and property market rallies this year are sustainable, not loan-fueled bubbles as some analysts have suggested, said Henderson Global Investors Ltd.
Deposits at the four largest listed banks grew by 4.3 trillion yuan ($629.76 billion) in the first half of 2009, according to data from company filings compiled by Bloomberg. That's more than the 3-trillion-yuan increase in loans from the same banks, Bloomberg data show.
The steeper rise in deposits suggests many State-owned companies haven't spent their loans yet, said Henderson's Andrew Beal. The money manager's view contrasts with warnings from CLSA Ltd strategist Christopher Wood and former Morgan Stanley economist Andy Xie that borrowed money may be spurring asset bubbles.
The Shanghai Composite Index jumped 69 percent this year, while home sales surged 73 percent in the first nine months of 2009 from a year earlier.
Predictions that most of this year's new lending by banks "has gone straight into the economy, equity markets and property markets don't tell us the facts", said Beal, who helps manage $3 billion as Henderson's director of pan-Asian equities in London. "Most of that went straight back to deposits."
The four biggest listed Chinese lenders - Industrial & Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd and Bank of Communications Co - accounted for almost half of the record 7.37-trillion-yuan increase in new loans in the first half, company filings and central bank data compiled by Bloomberg show.
Beal said Chinese assets aren't overvalued and that rising investment may help economic growth increase to about 10.5 percent next year from 8.9 percent in the third quarter. Shares of ICBC and Bank of China may gain about 40 percent in two years, he said.
Both lenders posted third-quarter profits last week that beat analysts' estimates and set aside less money for losses on loans and investments.