What do bank share prices tell us about growth?
ByTom Holland had an interesting piece in the South China Morning Post three weeks ago in which he discusses the low valuations of Chinese banks. About a decade ago, if I remember correctly, Chinese banks were trading between three and four times book. Those valuations have dropped considerably since then:
On Monday, the weighted average price-book value ratio for the 10 Chinese banks listed in Hong Kong fell to just 0.98. In other words, as an investor you would have been able to buy shares in Chinese banks for less than the cash you would have received – in theory – if the companies were wound up the following day and the residual value returned to shareholders. That’s a highly unusual state of affairs, especially in a rapidly developing economy like China’s where banks have traditionally been regarded as a geared play on future growth.
Holland goes on the argue that this has important implications about the quality of the banking balance sheets:
What do bank share prices tell us about growth?
