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While the growth in China is slowing, the fact remains that things are still fairly robust – especially compared to many other global economies. As a result, investors still want to put money into the country. After all, with China's huge domestic economy, there is likely to be strong long-term growth.
So this week, Bank of America (NYSE: BAC) agreed to exercise its option to double its position in China Construction Bank (CCB), which is the #3 financial institution in China. The stake comes to about 19.1%.
Keep in mind that Bank of America got a sweet discount on the option. Thus, the position is in-the-money – the investment has tripled in value to $14.5 billion -- and it may be tempting for the firm to start dumping shares. In fact, shares of China Construction Bank have taken a hit because of the this possibility.
And, as for Bank of America, it could be a savvy move. Of course, the firm had to slash its dividend and must integrate the huge acquisitions of Merrill Lynch (NYSE: MER) and Countrywide. At the same time, Bank of America's stock price continues to deteriorate. So, bagging a couple extra billion is probably a good bet right now.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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