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MARKETS | Tony Chua, China
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Central Huijin buys China’s Big 4 stocks

The sovereign wealth fund’s support for state-owned banks spurred HKSE rally.

Agricultural Bank of China Ltd. jumped a record 12.8 percent in Hong Kong, leading a rally in the nation’s financial shares after state-run Central Huijin Investment Ltd. started buying the stocks.

Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, gained 6.7 percent to close at HK$4.31 while Bank of China Ltd. climbed 7.7 percent after the arm of China’s sovereign wealth fund said it began buying shares Monday in the four biggest banks. The cost of protecting China’s bank debt fell.

Central Huijin, set up to hold the government’s stakes in the banks, boosted its holdings after valuations sank below the level reached during the global financial crisis. Huijin helped spur a 21 percent week-long rally in the Shanghai Composite Index when it bought bank shares in 2008 as part of a series of steps taken by China aimed at supporting the market.

“Huijin’s move shows that banks are still a priority for the Chinese government,” Grace Wu, head of Hong Kong and China bank research at Daiwa Capital Markets Hong Kong Ltd., said by telephone Tuesday. “Huijin is supporting the share prices of the state-owned banks.”

The investment company didn’t provide details about how much it will invest and whether it will buy the shares in Hong Kong or Shanghai. Huijin also didn’t say why it was increasing its stake in the lenders.

The MSCI China Financials Index traded as low as 5.6 times estimated earnings earlier this month, below the 6.9 reached during the 2008 crisis, after slumping on speculation defaults will rise as the economy slows. The gauge has lost 32 percent this year as China’s property market showed signs of cooling and concern grew that $1.7 trillion of local-government debt will lead to bad loans.

Huijin bought 14.6 million shares in ICBC, 7.38 million shares of China Construction Bank Corp., 39.1 million shares in Agricultural Bank and 3.5 million shares in Bank of China on the Shanghai exchange, the four Beijing-based lenders said in separate statements to the Hong Kong stock exchange Monday.

View the full story in Business Week.

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