market folly

We're posting up notes from the Invest For Kids Chicago Conference 2017.  Next up is Jimmy Levin of Oz Management who is bullish on Chinese banks (CCB, ICBC, BOC, ABC).


Jimmy Levin's Invest For Kids Chicago Presentation: Long Chinese Banks

Late in the cycle prefer to look for off-the- run ideas, not classic value investing, but that idea is now the consensus.  Chinese banks are one idea not at an all-time high, and they’re out of favor due to pessimism abroad.

Long-standing local presence yields insights.  Risks here are over-stated or misunderstood.  China is likely to keep doing well – growth, but how much?  At 0.85x BV on a 14% ROE the Chinese big four banks are too cheap – historically they’ve traded above book.   Compared to U.S. and European peers the Chinese banks look cheap.

Worries about a property bubble bursting but inventory is down.  Worries about industrial excesses and overcapacity, but there have been reforms and prices are up.  Worries about restraining credit, but GDP still growing.  Worries about shadow banking, but loans in wealth management products are falling.

The Big Four have safer balance sheets than other banks in China.  At a 15% ROE, at least 10% capital build. 30-60% potential return as the banks re-rate.  Downside case is 65% of BV, down 10% from here – good risk/reward.



For more from this event, check out the rest of the presentations from Invest For Kids Chicago 2017.