＜Research＞UOB Kay Hian: PBOC Plans to Cool Down Bond Mkt; Stabilised Bond Yield Can Support CN Banks' Asset Income & NIM

　　UOB Kay Hian reported that the PBOC plans to sell treasury bonds to cool down the overheated bond market, while stabilising bond yields to support asset income and net interest margin (NIM) of Chinese banks. CM BANK (03968.HK) -0.350 (-1.000%) Short selling $151.90M; Ratio 39.613% is the broker's top pick in the sector.

　　The report estimated that the six state-owned banks and CM BANK earned RMB134 billion from bond trading and investment last year, accounting for 3.5% of total revenue. The Postal Savings Bank of China had the highest gain from bond trading and investment at RMB29.1 billion.

　　Although the market is concerned about potential losses on the banks' FVTPL (Fair Value through Profit or Loss) bond positions, the broker believed the risk is manageable as these investments accounted for more than 2% and 2.5% of the total assets of state-owned banks and CM BANK, respectively.

　　Instead, UOB Kay Hian believed that before the PBOC steps in to stabilise the bond market, Chinese banks would prefer to increase their investment returns by disposing of some of their FVTPL and FVTOCI (Fair Value through Other Comprehensive Income or Loss) bond investments, which would support their earnings growth amid weakening credit demand and margin compression. At the end of 2Q24, yields on 10-year and 30-year Chinese treasuries were down 27 bps and 30 bps, respectively.

　　(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-07-15 16:25.)