Exodus of Strategic Investors for Chinese Banks?

Swiss bank  UBS (UBS) may be setting a new trend after it disposed of its entire stake in Bank of China for an estimated $300 million profit on the last day of 2008. Within a week or so,  Bank of America (BAC) had followed suit, reducing its stakes in China Construction Bank to 16.6% from 19.1%. Similarly, a foundation owned by Hong Kong business tycoon Li Ka-shing reduced its position in Bank of China by selling 2 billion H-shares.

We think more such sales may take place in the coming months, as these banks' need to raise capital more than offsets their concerns about potential displeasure from the Chinese government. For instance, there are media reports that  Royal Bank of Scotland (RBS) is also working on a deal to reduce its position in Bank of China.

So far, the only exception has been  HSBC (HBC), which this week publicly reiterated its intention to stick with its 19% holding in the Bank of Communications. The lockup period for HSBC expired in August 2008. For more details about international banks' strategic holdings in China, please read the Stock Strategist Industry Report article "Foreign Strategic Stakes in Chinese Banks", written by my colleague Peter Liu.

Market Recap
The Chinese stock market was buoyed by stimulus policies for the auto industry and the 3G license issuance for telecom operators, but the indexes pulled back later in the week, as news that UBS sold its stake in Bank of China hit the market. For the week, the Shanghai Composite Index rose by 4.6% to 1,904, while the Shenzhen Composite Index increased by 3.6% to 6,719.

Financials
Deutsche Bank's JV with Chinese Brokerage Firm Received Regulatory Approval
Germany-based  Deutsche Bank (DB) will own 33.3% of the joint venture and will have the right to underwrite equities and bonds in China. It is the sixth foreign investment bank to have established joint ventures in China, a prerequisite to participating in the local fund-raising market. Deutsche Bank also owns 30% of a Beijing-based fund manager, Harvest Asset Management, as well as 13% of Hua Xia Bank, a publicly listed commercial bank in China.

Technology
Lenovo Cuts 2,500 Jobs
The world's fourth-largest PC maker this week announced plans to cut 2,500 jobs, or 11% of its global workforce, and to reduce executive pay by 30%. Lenovo will also consolidate its China and Asia-Pacific operations into one business group.

Industrials
Chinese Power Generators Face Weak Demand
According to the power generators' association, power consumption rose by a mere 5% in 2008, significantly down from the 15% growth rate in 2007. The association blamed the slowing demand on weaker industrial activities, which account for more than 60% of total power consumption.

Contributions from Lun Lu, Peter Liu, and Feliz Li.