Following the sell-off in Chinese equities, Michael Kerley, director of pan Asian equities at Henderson Global Investors and manager of Henderson Far East Income (HEFL), believes a number of shares look attractive. These include Bank of China's (HKG:3988) Hong Kong-listed shares.
"Few sectors in Asia divide investors in the way that Chinese banks do," says Mr Kerley. "They are trading at low valuations and opinions are polarised, with pessimists citing impending credit quality issues, lack of transparency in local government financing vehicles and a challenging operating environment, among others. However, government policy support has been unwavering and the perceived risks in the sector are likely to start to recede. Municipal bond market reforms are addressing local government financing vehicles' concerns, cutting lending rates and increasing liquidity, which will slow the pace of bad debt formation. And lower state ownership levels will bolster investor confidence.
"Bank of China stands out in the sector. It benefits from internationalisation of the renminbi and US rate hikes will boost overseas profitability. Loan growth could also follow from China-led infrastructure projects overseas. Moreover, the shares currently trade at a 40 per cent discount in Hong Kong to its equivalent listing on the domestic A share market, with a 5.4 per cent dividend yield."
The Hong Kong shares paid cash dividends of Rmb0.19 per share for 2014, over which year its total assets increased nearly 10 per cent to Rmb15.25 trillion.
Bank of China operates in areas including the Chinese mainland, Hong Kong, Macau and Taiwan.
The company's core business is commercial banking, including corporate banking, personal banking and financial markets services. BOC International Holdings is its investment banking arm, and subsidiaries also include Bank of China Group Insurance Company and Bank of China Insurance Company. Bank of China Investment Management operates its fund management business and BOC Aviation is in charge of its aircraft leasing business.
