RMB has been re-evaluated. US sub-prime loan crisis brought global decreased demand on Rmb products in economic aspect; meantime, cost hikes tightened capital liquidity, thus anticipation from investors began to change.
Direct influence of the crisis is the surging time risk premium and credit risk premium. 1) Investors prefer holding assets to capital. Market liquidity tightens as a result and causes up capital price and surging time risk premium; 2) Manufacture countries like China will suffer from surplus capacities and products due to decreased demand of consumption countries like USA, so we predict high or upward credit risk premium.
Reasonable P/B of banking and life insurance pegged at 2.11x and 2.75x respectively.
We maintain “Neutral” rating for banking industry and individual shares. 2.11x being the lowest estimation, we hold optimistic view on large-sized commercial banks, since they enjoy comparatively higher consumer levels, which is the only barrier to resist to risks in economic adjustment.
We maintain “Neutral” rating for insurance industry and decrease rating of China Life Insurance (601628) to “Neutral”. Fluctuations in bonds market resulting from equity market fluctuation and anticipated credit risk premium will bring value shrink in financial investment tools of life insurance companies.