BofAML’s #1 ranked China Banks analyst, Winnie Wu, makes a bold call to BUY China banks at current levels. 1)Winnie cites three key reasons for her call: Trough valuations of 0.7x P/B or 2.7x P/PPP which has not been seen since March 14. Note that 3x P/PPP has generally been a good entry point. 2) Net interest margin (NIM) bottoming out in 2017 as rate cuts is coming toward the end. Winnie also believes that China’s rates should not go to 0 given that reported GDP is still at 7%. 3) Bottom line recovery as credit cost peaks out. We do expect NPL ratio to keep rising but credit costs should peak-out in the next 2-3 years. In our view there are risks that the market is panicking and will overshoot in the near-term but fundamental investors should start accumulating at current levels and position for next year.
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