With reference to my earlier write-up (click HERE), besides SGX listed stocks, clients and readers can consider to take a look at some of the China banks listed on HK stock exchange. They may be interesting due to their upcoming results which may present some potential trading opportunities, especially when some of them have fallen 13-14% from their recent highs on 29 Jan 2018.
Why do I choose HK listed China banks, instead of our local banks for potential trading opportunities?
1. On a macro picture, Hang Seng seems to be slightly stronger than STI based on chart. For example, Hang Seng closed at its 100D exponential moving average (“EMA”) but STI gapped down below its 100D EMA;
2. HK listed China banks trade at much lower valuations, thus they may be easier to surprise on the upside. For example, both China Construction Bank (“CCB”) (00939.HK) and ICBC (01398.HK) trade at <1x P/BV and approximately 6x estimated earnings;
3. HK listed China banks are expected to report results this week. Hence there may be some upside moves if they manage to report better than expected results and guidance. Bloomberg has an informative article on 22 Mar 2018 citing that China’s big banks’ profits are set to surge (click HERE). CCB and ICBC plan to release their results on 27 Mar 2018.
I have chosen CCB and ICBC in the technical write-up below because they are:
a) The largest two banks in the world by assets – Based on S&P Global Market Intelligence Report 2017 (click HERE), both CCB and ICBC are the top two largest banks in the world by assets. China’s deleveraging drive is likely to exert an adverse impact on smaller Chinese banks which may in turn borrow money from the big banks such as ICBC and CCB, raising interbank rates and driving up margins eventually;
b) Most widely covered by the analysts and they have no sell call despite the wide coverage. There are limited hold calls too. On average, analysts estimate there is approximately 26% potential capital appreciation versus 23 Mar closing prices. Readers can click here for the analyst calls on CCB HERE and ICBC HERE;
1. China Construction Bank (00939.HK) – closed HKD8.09. Day range 7.90 – 8.09. Ave analyst target: HKD10.18; RSI: 43.4; ATR: 0.25
CCB has been trading in a range HKD7.71 – 8.61 since around 9 Feb 2018. Directional indicators (“DIs”) have just turned negative with ADX sliding to 18.2, indicative of a sideways trading market. CCB’s chart seems stronger than ICBC because
a) It has not tested its 100D EMA on 23 Mar;
b) The degree of separation between its EMA is wider even on a percentage basis;
c) OBV has not tested the supports last month.
Near term supports: HKD7.90 / 7.81 / 7.71 / 7.61
Near term resistances: HKD8.10 / 8.15 / 8.24 / 8.31 / 8.35
Chart 1: CCB’s chart looks stronger than ICBC
Source: Chartnexus 23 Mar 18
2. ICBC (01398.HK) – closed HKD6.65. Day range 6.54-6.66. Ave analyst target: HKD8.43; RSI: 40.6; ATR: 0.20
ICBC has traded HKD6.46-7.14 since 13 Feb 2018. Despite negatively placed DIs, ADX has been sliding to 13, indicative of a sideways trading market. ICBC tested its 100D EMA (currently at 6.61) and closed above it on last Fri. OBV has is testing the recent support level. RSI closed 40.6.
Based on Chart 2 below, it is unlikely to drop significantly, unless their results or guidance disappoint the markets. Barring negative surprises from results, or escalation of trade war, ICBC should find strong support around HKD6.35 – 6.46. (coincides with approx. 1x ATR)
Near term supports: HKD6.61 / 6.53 / 6.46 / 6.41 / 6.35
Near term resistances: HKD6.66 / 6.75 / 6.81 / 6.86
Chart 2: ICBC trades within the range HKD6.46-7.14
Source: Chartnexus 23 Mar 18
Please note that as everybody is different, readers / clients should exercise their independent judgement and carefully consider their percentage invested, returns expectation, risk profile, current market developments, personal market outlook etc. and make their own independent decisions.
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