Chinese banking shares listed in Hong Kong tumbled on Wednesday after Goldman Sachs downgraded top lenders, including the Agricultural Bank of China (AgBank), in a report that raised questions over the sector’s financial health. The Hang Seng Mainland Banks Index dropped more than 3%, on track for its worst day in eight months. Goldman said in a report on Wednesday that it downgraded Agbank from “Neutral” to “Sell” and cut its ratings on the Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCCB) from “Buy” to “Sell.”
The drop came after investors were already worried that a slowdown in the world’s second-largest economy could hurt lenders. China’s government has been trying to boost growth and tame inflation by raising taxes on fuel and food. But the measures have yet to significantly impact consumer spending, which has been weaker than expected this year.
A tepid global economic recovery has also left many investors wondering if China can dig deeper into its stimulus toolbox. A recent survey of bankers showed that they expect loan demand to decline further in the second quarter as higher oil prices curb consumption, putting further pressure on Beijing’s policies.
But analysts say investors were also spooked by the collapse of US regional lender Silicon Valley Bank earlier this week, which triggered concerns about broader contagion in the banking industry. “The market has been very jittery, particularly for the US banks,” Julius Baer strategist Richard Tang said.
Investors are also concerned that China’s central bank will be forced to tighten monetary policy to stem inflation, which has been running at its fastest pace in years. The country’s consumer price index (CPI) hit a five-year high of 4.4% in August, up from 3.8% a year ago. The rise in CPI has prompted the central bank to raise reserve requirements for some lenders, and the government is warning companies to step up cost-cutting efforts to control rising inflation.
Shares in China’s video-sharing platform Bilibili Inc 9626, -5.23% slumped more than 5% in Hong Kong after the firm issued a profit warning and said it would halt new investments in the sector. Meanwhile, e-commerce giant Alibaba Group Holding 9988, -2.07% BABA, lost 2%.
In Shanghai, the CSI 300 index slipped 1.6% as losses in the steel and property sectors offset bank gains. China Steel Corp fell more than 4% after the state-owned enterprise warned that a looming increase in iron ore prices would squeeze its financial margins. It also lowered its production forecast.
