Less than five months ago, the Global X China Financials ETF (NYSEArca: CHIX) was spotted hitting an all-time high, but over the past 90 days, the fund has tumbled 31.7% and now most endure less-than-inspiring profit growth from China’s largest banks.
Past bullishness for CHIX was accrued against the backdrop of dividend cuts from Chinese banks. Amid rising bad debt, three of China’s four largest banks last week announced payout cuts with one, China Citic Bank Corp., scrapping its dividend altogether, according to Bloomberg. [EM Dividend ETF Bounces Back]
Add to that, pay cuts and restrictions have sparked a spate of executive departures at the Bank of China, Bank of Communications, and China Construction Bank, among others. Bank of China and China Construction are CHIX’s two largest holdings
These days, CHIX is home to some stocks that are showing scant, if any, profit growth.
“In the second quarter, profit at publicly listed Chinese banks grew only 1.7% from a year ago, the worst showing in a decade. The Big Four China banks saw virtually no profit growth, the 9 joint-stock banks’ profit grew only 4.4%. Only the 5 city commercial banks reported decent 14.1% profit growth. At 11% year-on-year, revenue growth was far more respectable. But much of that was boosted by strong fee income that came out of the stock market rally. Chinese banks saw 20.8% increase in net fee income and we can’t expect that to repeat in the second-half,” reports Shuli Rhen for Barron’s.
If there is good new for CHIX it is that the ETF’s’ valuation is compelling. As in it is extremely low. The current price-to-earnings ratio on CHIX is 6.85 and the ETF trades at less 1x book value, according to Global X data.
The problem for CHIX and its holdings is the assets held by Chinese banks are suffering from worsening quality as the world’s second-largest economy stumbles.
“The market expects the banks to impair at least 30% of their book value – not a surprising assumption because back in early July, Chinese banks provided billions in loans to help fund the bailout entity China Securities Regulatory Commission to prop up the stock market,” reports Barron’s.
Global X China Financials ETF
