HONG KONG: China Construction Bank (CCB) yesterday sizzled and outperformed the Hong Kong and Shanghai stock markets after an unconfirmed media report claimed that the mainland's sovereign investment fund has agreed to buy CCB shares which Bank of America (BoA) might sell in the world's second largest bank by market value.

CCB's H-shares surged 5.1 percent to a seven-month closing high of HK$4.99, beating the benchmark Hang Seng Index, which rose 2.3 percent for the sixth consecutive session of gains.

In Shanghai, CCB's A-shares rose 2.0 percent to 4.61 yuan, surpassing the 0.2 percent gain by the benchmark Shanghai Composite Index.

Analysts said that even if there was no official confirmation of a purported plan by China Investment Corp (CIC) to buy the CCB shares that BoA might sell, news about CIC helped remove the overhang over CCB's share price.

BoA currently owns 39.1 billion CCB shares, representing 16.7 percent of the mainland's second largest bank. Of the total, 13.5 billion are H-shares which BoA could offer for sale from yesterday, the end of a lock-up or restriction from the sale of those shares.

CCB's share price had been under pressure of late as investors worried that BoA would offload onto the market a large volume of CCB H-shares and dragging down in the process its price.

Prospects of the $200 billion sovereign wealth fund stepping into the breach and buying the H-shares helped ease investor worries, analysts said.

"The overhang on CCB's share price has now been smoothed out with news about CIC. However, it is uncertain how long CCB can maintain its momentum," said Castor Pang, a strategist at Sun Hung Kai Financial.

He believes CCB's share price will likely follow the general market uptrend of late.

"Even if BoA sells its H-shares holdings, this is unlikely to exact a heavy toll on CCB's share price and its operations," he said.

Redford Securities research head Kenny Tang said investors should consider investing in CCB and holding its shares medium to long-term, as the lender's price-to-earnings ratio has fallen to a profitable level.

"The bank's ability to cope amid a regime of narrower net interest margins is better than its mainland peers," said Tang.

He added that mainland banks may also benefit from strong loan growth this year.

Some analysts said BoA may need to raise up to $34 billion, after the US government's release, due last night, of the results of stress tests on US banks.

The exercise is aimed at evaluating the ability of 19 largest banks in the US to weather the impact of the global economic recession.

Analysts said BoA stands to raise up to $8 billion in the event that it decides to sell off the CCB H-shares that it is currently holding.

BoA purportedly attempted to sell $2.8 billion worth of CCB shares in December last year.

However, the deal failed to materialize allegedly because of a provision in Beijing's securities law which prohibited investors, holding over 5 percent of a listed firm, from selling down shares within six months from their purchase.

(HK Edition 05/08/2009 page16)