After years of shunning Chinese banks as a symbol of the country’s problems with excess debt and wasteful spending, investors are warming again to mainland lenders amid signs that profitability is rebounding and defaults are under control. 

An index of Chinese banks listed in Hong Kong has risen 7 per cent this year — even after falling sharply in last week’s global market rout — compared with a 2 per cent rise in a gauge of all Hong Kong-traded mainland groups. 

Analysts say the rise in bank shares reflects the broader improvement in sentiment towards China’s economy since late 2016, when growth was slowing amid entrenched deflation, the stock market and renminbi exchange rate were cratering and capital flight was rampant. Such pessimism had motivated a series of failed “short China” trades since 2011.