Bank of China stock analysis: is a relief rally likely?

Bank of China may be set to start a relief rally above HK$2.692

A Bank of China Branch                                 
Bank of China stock may be set to start a relief rally. Photo: Shutterstock
                                

Bank of China Ltd reported a net profit of CNY112.8bn ($17.44bn) in the first half of the year, up from CNY100.9bn in the same period last year. 

The figure marks a jump of 11.8% in the first six months, the biggest since 2013, according to Reuters.

For the April to June quarter, the bank – not to be confused with the state central bank, the People's Bank of China – earned a net profit of CNY60.2bn, against CNY48.33bn in the same quarter in 2020, an increase of almost 25%.

However, during the quarter, the bank’s net interest margins (NIM) dropped almost 11 basis points from the same period a year ago. The NIM of 1.76% was also lower than the 1.8% recorded during the previous quarter.

Wang Wei, executive vice-president of Bank of China, said in an earnings conference on 30 August reported by S&P Global that the increase was mainly the result of falling interest rates.

“We think the NIM will continue to be under stress in the future. We will increase the proportion of demand deposits and better manage our cost of funding. Meanwhile, we will also attract more mid- and long-term loans,” he added.

BoC also said it expects bad debt to grow more offshore. BoC's chief risk officer, Liu Jiandong, told Reuters: “New non-performing loans abroad are mainly concentrated in industries such as real estate and aviation that are continuously affected by the epidemic.”   

Will the Bank of China stock go up after the results? What do the charts suggest? Read our BoC stock analysis to find out.

Bank of China share price technical analysis: weekly chart

Bank of China weekly chart
Bank of China share price analysis, weekly chart – Credit: Currency.com

Bank of China’s stock price has been in a strong downtrend since topping out at HK$4.95 in January 2018. The stock rallied sharply from the October 2020 lows of HK$2.324 to HK$3.105 in April this year, however.

The bulls could not sustain the momentum, though, and the price dipped back below the HK$3 support in May. The 20-week exponential moving average (EMA) is sloping down and the relative strength index (RSI) is in negative territory, indicating an advantage to bears.

The bulls have successfully defended the HK$2.633 support in the past few weeks but they have not been able to push the price above the 50-week simple moving average (SMA). This suggests a lack of demand at higher levels.

If the price turns down and breaks below HK$2.633, the stock could decline to HK$2.496. The bulls are likely to defend this level aggressively because if it cracks, the decline may extend to HK$2.324.

Conversely, if bulls drive the price above the moving averages, it could start a relief rally in the stock. The buyers will then try to push the price to HK$3.  

Bank of China share price technical analysis: daily chart

Bank of China daily chart
Bank of China share price analysis, daily chart – Credit: Currency.com

Bank of China’s stock price has been trading inside a tight range of HK$2.633 and HK$2.692 for the past few days. Both moving averages have flattened out and the RSI is near the midpoint, indicating a balance between supply and demand.

This balance will tilt in favour of the bulls if they push and sustain the price above HK$2.692. That will open the doors for an up-move to HK$2.771. If this level is also crossed, the rally may reach HK$2.908. 

On the other hand, if the price turns down and breaks below the support of the range, the downtrend could resume. The longer the time spent inside the range, the stronger will be the eventual breakout from it.

Bank of China stock: buy or sell at these levels

Bank of China’s share price analysis shows the stock is attempting to form a bottom.  A break-out and close above HK$2.692 will signal the possible start of a new uptrend. This positive view will invalidate if the price breaks and closes below HK$2.633.

The views and opinions expressed in the article are those of the author and do not constitute trading advice. Trading and investing involve substantial risks and you should do your own research or contact your financial adviser before arriving at a decision. Always remember your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money. Never invest more than you can afford to lose.

Trade Bank of China stock: Bank of China share price

Bank of China Limited
Daily change
2.732
Low: 2.732
High: 2.742
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