The Industrial and Commercial Bank of China Ltd (ICBC) logo is seen on a building at sunrise. Photo: Reuters/Enrique Marcarian

Better than expected earnings released on Wednesday for China’s biggest banks were not entirely a surprise to markets, as we noted yesterday, with shares of Chinese lenders leading HSCEI gains over the past three months.

But some investors continue to ignore the big four, and do so at their own peril.

As Nisha Gopalan writes today at Bloomberg, earnings at China’s oil and telecom giants are still just a fraction of even the smallest of the big four:

Bank of China, the smallest of the four, reported a 23 percent surge in second-quarter profit after curbing soured loans and expanding lending margins. The other three posted an average net income gain of 3.5 percent compared with the same period last year. All the lenders’ nonperforming loans declined, while net interest margins rose.

When Beijing began hiking short-term interest rates earlier this year to rein in shadow banking, it did big banks a favor. The four control about 40 percent of the country’s deposits and one-third of the nation’s $36 trillion in banking assets. Those huge money pools mean they benefit from rising rates. Smaller lenders that rely more heavily on interbank funding, like Bank of Ningbo Co., aren’t faring as well.

…these lenders’ sheer size, along with their state backing, amount to one immutable fact: Banks remain the best way to bet on the world’s second-biggest economy.

With the banks making headway in reducing risk from bad debt, and with prices at roughly half the p/e ratio of big western counterparts, it is no longer possible to ignore them.

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