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China’s Big 4 Banks Are Cheap Now. But Which is the Cheapest?

One of the most hated industries among investors now is China’s banking industry. There are many “good” reasons to worry about these stocks – slower economic growth in China, the trade war and more.

Given such pessimism, banking stocks are trading at cheap valuation as compared to other companies. For me, it’s a good area for investors to search for investment ideas. After all, these big banks are unlikely to go anywhere in the next decade.

And this brings me to the main purpose of this article. Which of these banks, namely Industrial and Commercial Bank of China Limited (SEHK: 1398), Agricultural Bank of China Limited (SEHK: 1288) Bank of China Limited (SEHK: 3988), and China Construction Bank Corporation (SEHK: 939) is the cheapest now?

We will try to answer the question by comparing the valuation metrics of the four banks (as of writing). The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.

Price-to-book

To begin with, ICBC, ABC, BOC, and CCB have PB ratios of 0.8, 0.7, 0.5 and 0.8, respectively. The lowest PB ratio is BOC’s which suggests it has the lowest valuation.

Price-to-earnings

Next, ICBC, ABC, BOC, and CCB have PE ratios of 6.4, 5.1, 5.1 and 5.9, respectively. Here, ABC and BOC came in ahead given their lower valuations as compared to the rest.

Dividend yield

Last but not least, the respective dividend yields for ICBC, ABC, BOC, and CCB are 4.8%, 6.0%, 6.3% and 5.3%, respectively. The higher a stock’s yield, the lower its valuation. Thus, we can see that BOC has the lowest valuation in terms of its dividend yield.

Conclusion

Overall, BOC is probably the cheapest stock among the four major mainland China banks due to its low PB and PE ratios, as well as its high dividend yield.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.