China's state banks are absurdly cheap, and nobody is buying为什么超低估值成了中国国有大行的常态？

ICBC trades at a price-to-earnings ratio of just over seven. JPMorgan, for comparison, is at fifteen. The price-to-book ratio is stranger still, parked for years between 0.5 and 0.7 — meaning the market will only pay sixty cents for every yuan of net assets on the books.

Price-to-earnings is the share price divided by profit per share; the lower it is, the cheaper the stock. Price-to-book is the share price divided by net assets per share; below one means it is selling at a discount.

Value investors cheer when they see these numbers and calculate an enormous margin of safety. Then they buy in, wait ten or twenty years, and the stock stays just as cheap. They go grey waiting.

It is not a purely commercial business

The big American banks answer to shareholders alone. China's state-owned giants carry a second job: stepping in when the economy sours. Cutting loan rates, handing cheaper credit to small firms, helping local governments repay debt — they foot the bill.

The market understands this and thinks: this company's profit can be surrendered for the greater good at any moment. So the valuation gets a heavy haircut, and the earnings multiple is halved.

Growth is over, and the bad loans are unclear

Banks make money on the spread between what they pay depositors and what they charge borrowers. Years of rate cuts have squeezed that spread to around 1.3 per cent, a historic low. The six biggest state banks hold over a hundred trillion yuan in assets between them; at that size, profit growth has fallen to single digits or nothing at all.

On paper the bad-loan ratio is barely above one per cent, which looks solid. But investors worry about what has not surfaced yet: loans to local government financing vehicles, and the hole left by property. They do not believe the net assets on the books can be cashed out yuan for yuan, so they discount again.

So do not expect the share price to double. It behaves more like a bond with a higher coupon: failure is close to impossible, a third of profit is paid out each year, and the dividend yield runs four to seven per cent. As a ballast holding for retirement money, it passes.