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Chinese banks' tally increases in Q2 market cap ranking as shares surge

Chinese banks grew their presence on the list of the Asia-Pacific region's largest lenders by market capitalization in the second quarter as major banks benefited from increased investor interest following posting better-than-expected financial results.

Industrial Bank Co. Ltd. joined other domestic peers in S&P Global Market Intelligence's ranking of the region's 20 largest banks after its market capitalization expanded 11.7% during the second quarter to $50.37 billion. Its addition to the rankings brought the number of China-based banks on the list to eight. Four banks from Australia, three each from Japan and India and one each from Singapore and Indonesia were also included on the second-quarter list.

Chinese banks retained the top four slots, with Industrial and Commercial Bank of China Ltd. (ICBC) leading the pack with a market cap of $263.05 billion. China Construction Bank Corp. saw the greatest market cap expansion in the period as it rose 21.4%.

Bank shares in mainland China climbed in the April-June quarter even as benchmark indexes marked declines. The Shanghai Composite Index fell 3.6% in the quarter and the Shenzhen Component Index dropped 8.3%. However, the Hang Seng China A Banks Index, which reflects the overall performance of bank securities listed in mainland China, rose more than 6%.

Chinese equities are now enjoying positive momentum after hitting lows in January, Swiss private bank Julius Baer said in a July 2 report.

"Within emerging markets, we still like Brazil, India, South Korea, and Taiwan," the report stated. "However, Chinese equities have rebounded sharply from their January lows and are now enjoying positive momentum, supported by economic green shoots and further signs of policy support."

While China's biggest lenders — ICBC, China Construction Bank, Agricultural Bank of China Ltd. and Bank of China Ltd. — posted year-over-year drops in first-quarter earnings, the declines were shallower than the previous quarter. The decreases ranged from 1.6% at Agricultural Bank of China to a drop of 2.9% at Bank of China. Measured over the previous quarter, China Construction Bank's and Agricultural Bank of China's earnings actually grew by double-digits, while ICBC's and Bank of China's earnings weakened.

Japanese, Indian banks

Overall, 18 of the region's 20 banks logged quarter-over-quarter increases in their market caps, with Indonesia's PT Bank Central Asia Tbk and Australia's ANZ Group Holdings Ltd. being the outliers, according to Market Intelligence data.

Japanese megabanks logged significant gains, reflecting increased investor interest amid expectations about interest rate hikes from the Bank of Japan. Mitsubishi UFJ Financial Group Inc.'s market cap grew 9.4% to $125.36 billion, while Sumitomo Mitsui Financial Group Inc. posted a 20.2% increase. Mizuho Financial Group Inc.'s stock gained 10.2% in the quarter.

While the bull run of Japanese equities stabilized in recent months, as evidenced by the benchmark Nikkei 225 declining 0.6% in the second quarter, the prospects for Japanese equities appears robust.

"The outlook remains supportive for Japanese stocks," said Daniel Hurley, T. Rowe Price's portfolio specialist for emerging market and Japan equities, citing economic growth, inflation and the country's accelerated corporate governance reforms.

Meanwhile, an improvement in financial metrics and positive sentiment in the Indian market helped boost lenders' share prices. India's benchmark indiexes, BSE Sensex and Nifty 50, rose 6.8% and 6.9%, respectively, during the quarter.

The market cap of HDFC Bank Ltd. expanded 16.5% quarter over quarter to $153.68 billion. ICICI Bank Ltd.'s market cap swelled by 9.9%, while State Bank of India saw a 12.8% rise.