Summary of Key Points
Recently, the A-share banking sector has performed strongly against the market trend: On July 28th, while the overall market was declining, 39 bank stocks rose in price, increasing the total market value by 229 billion yuan in just one day, nearly returning to the levels at the beginning of the year. The entire month of July has seen a recovery of over 1.4 trillion yuan. The reason behind this is a decline in market risk appetite, with funds shifting from high-volatility hard-tech stocks to the banking sector, which offers lower valuations and higher dividends. Additionally, the fundamentals of banks (revenue and profits) have begun to improve, suggesting that future valuation considerations may shift from focusing on net assets to earnings growth.
I. Bank Stocks Surging Against the Market Trend: Narrowing the Market Value Gap with Tech Stocks by 200 Billion Yuan in One Day
On July 28th, the A-share market fell across the board, but the banking sector stood out: The Wind Bank Index rose by 1.51%, with 39 out of 42 bank stocks increasing in price. The most notable performances came from Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB):
- CCB rose more than 3% during the session, reaching a new historical high of 10.68 yuan per share, with a total market value exceeding 2.1 trillion yuan;
- ICBC closed the day up 3.1%, increasing its total market value to 2.7 trillion yuan. The gap between CCB's market value and that of Cangxin Technology (a hard-tech stock), which had surpassed it the previous day, narrowed from 645.1 billion yuan to 441.2 billion yuan—covering a difference of 200 billion yuan in just one day!
The total market value of the banking sector increased by 229 billion yuan that day, equivalent to the market value of a mid-sized listed company (for example, a technology company with a market value of 200 billion yuan).
II. Why Did Bank Stocks Perform So Poorly in the First Half of the Year?
There are three main reasons for the poor performance of bank stocks in the first half of the year:
1. Fund Redemptions and Selling: A large number of ETFs that track indices such as the CSI 300 were redeemed, leading to the simultaneous selling of bank stocks as part of these indices.
2. Leverage Effect of Market Sentiment: The market was heavily focused on hard-tech sectors (such as AI and chips), causing funds to flow towards tech stocks and neglecting bank stocks.
3. Record Low Holdings by Institutions: The proportion of actively managed public funds holding bank stocks dropped to the lowest level since 2019, while northbound funds (from mainland China) were also flowing out. Only southbound funds from Hong Kong continued to buy bank stocks.
III. Sudden Flow of Funds Back to Banks: The Logic Behind the “Safe Haven” Trend
As July began, market conditions changed:
- Hard-tech stocks started to decline sharply (for example, Cangxin Technology had risen too rapidly and was now correcting).
- The mid-year report period arrived, and many companies' performance was uncertain, making investors more cautious due to decreased risk appetite.
- Bank stocks possess two “safe features”: low valuations (cheap prices relative to net assets) and high dividends (steady annual earnings).
Therefore, funds moved from high-risk tech stocks to banks as a safe haven, driving up their valuations after significant declines.
IV. Have Bank Fundamentals Really Improved? Early Performance Signals
The rise in bank stocks is not solely due to risk aversion but also because of improving fundamentals:
- Chongqing Bank and Yuchang Rural Commercial Bank were among the first to release their semi-annual reports, showing positive growth: Chongqing Bank’s revenue increased by 10.8% and profits by 10.28%, while Yuchang Rural Commercial Bank’s revenue grew by 7.8% and profits by 6.09%.
- The performance of Shanghai Pudong Development Bank (SPDB) also improved, with loans increasing by 2.88% and deposits by 5.05% (more deposits mean the ability to earn more interest on loans).
Analysts believe that bank operations have passed their lowest point, and revenue is expected to grow in 2026, with interest income becoming more profitable (as interest rates stabilize).
V. What’s the Future for Bank Stocks? From “Defensive” to a Dual-Driven Strategy of “Dividends + Growth”
Analysts are relatively optimistic about the future of bank stocks:
1. Short-term: Market risk appetite has not yet recovered, so banks’ defensive qualities (safety and dividends) will continue to attract funds, supporting valuation recovery.
2. Long-term: Investment logic is changing—instead of focusing only on low valuations, investors are now looking at earnings growth. Banks are considered “bond-like assets” due to their stable dividend payments, attracting conservative investors. Additionally, high-quality banks with growing profits will show “growth potential,” as interest rates stabilize and credit demand increases.
In summary, the recent rise in bank stocks is a result of both risk aversion by funds and improving fundamentals. For individual investors, bank stocks are no longer just a safe option; quality banks offer both stable dividends and growth potential. However, it’s important to note that not all banks perform similarly, so it’s essential to consider factors such as performance (revenue and profit growth) and regional factors (such as the economic vitality of the regions where the banks operate).