Investing in Chinese Banks

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These days I saw more and more banks in Shanghai. Beside the addition of domestic banks such as Bank of Shanghai, which has root from Shanghai City Credit Union, many foreign banks such as Citi Bank opened branches and they also do the Ren Ming Bi business. Why suddenly we have so many banks? I remember 10 years ago we have the big four: ICBC, Bank of China (specialize in foreign currencies), Agriculture Bank and Construction Bank, plus Bank of Communcations, and the Cedit Unions I mentioned. Now it’s a total different ball game.

The reason, of course has to do with “making money”. I am not going into the details about how the banks make money. But consider this: China has a 50% saving rate; currently China has 320,000 people who has net worth more than USD 1 m (this number is expected to grow to 2,000,000 people in a few years). From low end to high end, people need to put money somewhere, be it in savings account, certificate of deposite, money market, mutal fund, stocks, or bonds. People also need to borrow from bank to buy the house and cars.

So we know the banks will make money, one way or the other. The question is how can we, average investors make money on banks? I think selectively buying bank stocks or buying the companies who hold significant amount of bank stocks may work. For your homework ideas, this Chinese article is a good starting point.

Disclosure: I already tried the latter approach. I am long on 600064.SS and 600606.SS.    

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