China’s bank shares have gained more than 10% since the start of the month, outperforming the Shanghai Composite Index and Hang Seng Index by 8 percentage points over the same period, said JPMorgan in a note.
Based on communications with onshore and offshore investors, the bank said that investors in Hong Kong and Singapore are neutral on the sector, while investors in the UK, EU and US tend to reduce their holdings.
JPM expected domestic banks to continue to outperform for the rest of the year and forecast the offshore market to shift further towards H-shares of China banks, adding the current uptrend in the sector is cyclical rather than structural.
If SOE reforms are more significant than the broker’s own fundamental scenario, there could be a structural re-rating for SOE banks, it said, with its short-term recommendation still on state-owned banks or banks with concentrated ownership of SOEs.