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Chinese stocks may underperform as a cut in interest rates will lower earnings of the nation’s banks and hurt their share performance, according to Hao Hong, chief China strategist at BoCom International Holdings Co.
Banks are the most heavily weighted industry in benchmark indexes, he wrote in a report today. Lenders’ earnings may drop by more than 10 percent after the central bank reduced borrowing costs for the first time since 2008, he said.
“With earnings under pressure while valuation multiples difficult to expand due to a lack of liquidity, banks are likely to underperform, and together with the market index performance,” Hong said. The “rate cut is behind the curve and unlikely to excite much. But more cuts should be expected.”
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