CIHHF - China Merchants Bank: Pulling Back As Sector Headwinds Warrant Caution
2024-03-25 13:33:17 ET
Summary
- Within China's banking universe, China Merchants Bank continues to stand out for its quality.
- Yet, an aggressive rate cut cycle looms large, which will probably drag margins lower.
- In light of a challenging near-term backdrop for the sector, CMB equity isn't priced cheaply enough.
As China's leading privately owned commercial bank, China Merchants Bank or 'CMB' ( OTCPK:CIHHF ) has done a stellar job carving out a niche in retail banking and subsequently building on that base with less rate-sensitive fee businesses (e.g., wealth and asset management, among others). That said, the bank isn't immune from external headwinds, most pertinently from an accelerated pace of monetary easing by China's central bank (the PBoC), which will weigh on net interest margins (NIMs) from here. Data out of China also indicates the country isn't growing the way it used to (a key reason my previously upbeat post-reopening view on CMB didn't pan out); thus, I wouldn't count on much offset from loan growth in the likely scenario we see more rate cuts this year. Asset quality relief post-rate cuts isn't going to be enough of a tailwind either, as CMB hasn't been as heavily impacted by China's real estate troubles....
China Merchants Bank: Pulling Back As Sector Headwinds Warrant Caution