The recent rally in Chinese stocks has pumped up a swath of companies, but U.S. investors still can climb on to ride China even higher. Specifically, both Bank of China Ltd AD (BACHY) and China Life Insurance Company Ltd. (LFC) should get a tremendous boost from the roaring bull market in China.
Bank of China also should benefit directly from the stimulus measures that have ignited the recent surge in Chinese shares.
The Shanghai Composite jumped 53% in 2014, and as of Jan. 5, Chinese stocks were off to their best start to a year since 1993, Bloomberg reported.
The stock rally itself will make several of Bank of China’s businesses more lucrative. BACHY’s investment banking and wealth management businesses should benefit as companies look to issue more shares and wealthy individuals buy more stock.
Of course, Bank of China’s proprietary trading and private equity businesses will also produce better results due to the stock rally.
Moreover, the stimulus measures themselves should lift the bank’s top and bottom lines. The People’s Bank of China, the country’s central bank, said that it would boost banks’ liquidity by changing the rules for calculating their loan to deposit ratios, Reuters reported on Dec. 28. As a result, the country’s banks (including BACHY) will be able to make more profitable loans.
More monetary stimulus is probably on the way, Bloomberg reported Jan. 5. Earlier in the year, People’s Bank lent hundreds of billions of yuan (each 100 billion yuan is worth about $16.1 billion) to Chinese banks at low rates to reduce borrowing costs and spark activity, Reuters reported in November.
Similarly, China Life Insurance also stands to benefit significantly from the rebound in Chinese stocks. The company’s subsidiary, China Life Asset Management Company Limited, is “one of the largest institutional investors in China’s capital market,” according to the insurer’s website. Stocks accounted for about 8.4% of LFC’s investment portfolio in 2013, Bloomberg Businessweek reported on Dec. 29, 2014 … and there’s a good chance that the percentage has risen as Chinese stocks rallied this year.
It’s true that investors have already missed some of China Life’s and Bank of China’s party. Both companies’ U.S. stocks have risen about 26% in the last year.
Still, those returns are somewhat dwarfed by the Shanghai Composite’s 2014 rally. And both stocks are trading significantly below their five-year highs, set in 2010, before fears began building about a “hard landing” of the Chinese economy.
The jump in Chinese stocks has been one of the hottest trends of the last year. U.S. investors can easily get a piece of the action by buying shares of Bank of China and China Life.
As of this writing, Luke Rollins did not hold a position in any of the aforementioned securities.