As the New Year starts the Chinese are slowing their economy by putting new capital and accounting requirements on their banks. Chinese banks will now be required to gradually add their off-balance sheet trust operations on to the books. This will create a need for additional equity capital.
The solution? Issue more shares. Clearly if you look at the pending issuance calendar, many banks are already in line to raise capital over the coming quarters. And given the longer term fundamentals of the Chinese consumer, banks are likely to find willing stock buyers. But, personally I don’t see how you can make great returns in Chinese financial stocks against this massive outflow of issuance.
The question then is where is the value in financials? My answer to you is in emerging market financial stocks where capital is not a problem.
Best wishes and happy trading
+ Rudy Martin
