Is it time to buy China Construction Bank?

The HK stock market rose 0.41% to close at 25,618 ending a week of big swings.
Top story for the day was the placement of 400 million shares of China Construction Bank (CCB #939) at HK$7.05 which is a discount of 2.5% to the market close of HK$7.23 yesterday. CCB closed today at 7.04 bid and 7.05 offer.
The 400 million is only 0.18% of the 224.7 billion shares issued and amount to only 1 day’s turnover in the stock. However, investors are concerned that other strategic investors who were allocated stock in the IPO will start selling. Bank of America which holds 9% will be able to sell in October 2008 at the end of the lock up period. Temasek still has 5.99% which it can sell.

Strategic investors sell their stakes for a variety of reasons which may or may not have anything to do with the company’s performance. Mostly, sales are made to replenish the strategic investors’ own capital and this may be the case in the aftermath of the subprime crisis. Sales by strategic investors do tend to dampen market interests because of the fear of an overhang of stock coming to the market.

As Temasek sold at this level last year, it is reasonable to assume that this would be a good level to use as a base. CCB went as high as HK$9.00 last year and I believe that it would go much higher as Chinese consumers discover banking and financial products, and more deposits find their way into the system.

Accumulate CCB at the current levels.

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