China Financials

China financials look cheap or with potential bullish patterns. The wildcard here is like with Japan: is there a nomainal breakout coming that will be fueled by currency depreciation?

Here is the U.S. China Financials ETF, CHIX, sucking wind. It could have a long way to rally if China's markets rise and the currency rises.

At this stage I'd prefer nominal exposure with a currency hedge. I think the current bear market rally around the world would have to transform into an actual bull market, complete with weaker USD and emerging market outperformance, for a pure long China trade to pay off with low risk. That said, looking at something like Shenwan (a stock I liked way back in the 2014 time frame), my sense is a nominal bull market will deliver enough gains to offset currency devaluation. Financials usually get destroyed in currency devaluation/high inflation scenarios, but maybe Chinese banks are so weak and priced cheap for their risk, that high inflation/currency deval would lift that risk.

Everbright Bank and China's Cash Crunch

Everbright Bank Failed to Pay CNY6.5 Bln Interbank Loan on Eve of June Cash Crunch

China Everbright Bank Co. (601818.SH) said that two of its branches failed to repay short term loans worth 6.5 billion yuan ($1.06 billion) due on June 5 to other financial institutions in China's interbank market, although the full amount was paid the following day.

June 5 marked the start of an interbank cash crunch that sent the interest rates banks charge each other for short term loans as high as 30% as banks suddenly became reluctant to lend. At the time, market chatter had it that some banks had defaulted on interbank loans, but no bank publicly acknowledged failing to pay its debts on time.

Everbright made the statement in its prospectus issued ahead of a public share offer and a planned listing on the Hong Kong stock exchange. It said that late in the afternoon on June 5, two of its branches "failed to receive from certain counterparties the expected proceeds from such inter-bank deposit commitments."

It did not name the counterparties but it suggested they might have been smaller financial institutions.

Here is news from Friday: China Everbright Bank Shares Fall on Trading Debut

Everbright Bank raised about $3 billion last week in an initial public offering — Hong Kong’s biggest of the year — after pricing its shares at 3.98 Hong Kong dollars, or 51 cents, apiece, near the lower end of their marketed range.

The stock opened at 3.95 Hong Kong dollars on Friday morning, and later in the morning traded as low as 3.78 Hong Kong dollars, a decline of 5 percent. The shares closed down 3 percent, at 3.87 Hong Kong dollars, compared with a 0.3 percent decrease in the benchmark Hang Seng Index.

Also, Everbright Bank slides in HK debut amid China cash crunch fears

China Everbright Bank Co Ltd fell in its Hong Kong debut on Friday, as renewed cash crunch fears about China's banking system exacerbated weak sentiment towards a mid-sized lender that has taken three attempts to come to market.

Everbright, which raised $3 billion in its IPO, is the latest in a raft of banks rushing to tap investors to meet more stringent capital rules, and which have seen profits shrink and unpaid debts climb amid slower economic growth.

While other China bank IPOs have also been lacklustre, Everbright's listing has been particularly unsung, with cornerstone investors accounting for about 60 percent of the offer - more than double the normal level - as underwriters sought to lock in as much institutional demand as possible.

Everbright, which is also listed in Shanghai, also had the misfortune to debut amid a spike in interbank rates. China's benchmark money market rate climbed to a six-month high on Friday despite attempts by the central bank to calm sentiment, showing signs of a scramble for cash reminiscent of a massive crunch that occurred in June.

Misfortune?

Shares just debuted in HK. Here's a look at how Everbright (601818) has been trading against other Chinese banks listed on the Mainland.