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On August 23, the share price of Industrial and Commercial Bank of China, which has newly become the "market value leader", hit a new high. Recently, the banking sector has risen against the trend when the market is sluggish, which has caused heated discussions in the market. Since the beginning of this year, the banking sector has steadily risen and led all sectors. There are multiple factors behind it. Industry insiders pointed out that there is still room for bank stocks to rise in the future.

This week, the banking sector accelerated its rise, with the share prices of the four major banks, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank, all hitting new highs. As of August 23, the banking sector's yield rate was far ahead of other sectors, up 20.43% this year, ranking first among the 31 industries of Shenwan.

Looking back at the sector trend, bank stocks showed an accelerated upward trend in the second half of the year, especially in the August earnings season, when bank stocks ushered in another round of rapid growth. Take ICBC as an example. The company's stock price has risen by 44.52% so far this year, and the increase in the second half of the year reached 25.68%, and it has risen by more than 8% since August.

The latest data shows that currently, the share price of Industrial and Commercial Bank of China is 6.46 yuan per share, ranking first in the A-share market value list with a total market value of 2.3 trillion yuan; Agricultural Bank of China is 4.92 yuan per share, with a total market value of 1.72 trillion yuan; Bank of China is 5.08 yuan per share, with a total market value of 1.5 trillion yuan; China Construction Bank is 8.24 yuan per share, with a total market value of 2.06 trillion yuan.

This year, many bank stocks have achieved the largest increase in the past five years. As of August 23, seven stocks, including Bank of Communications, Bank of Nanjing, Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of Chengdu, Shanghai Pudong Development Bank and Bank of Hangzhou, have increased by more than 40% this year. In addition, 13 stocks, including Bank of Shanghai, Chongqing Rural Commercial Bank and Bank of China, have increased by more than 20%. Among the 42 stocks in the banking sector, only four stocks, including Bank of Xi'an, China Minsheng Bank, Bank of Lanzhou and Bank of Zhengzhou, have fallen this year.

Since the beginning of this year, the dividend sector has become a safe haven for market funds, and bank stocks have become the first choice for funds due to their high dividend yields and stability. Against the backdrop of the central bank raising long-term bond yields, the relative allocation value of funds in the banking sector has been significantly improved, and "it is better to buy a bank than to deposit money in a bank" has become a reality.

The latest data shows that among the 42 listed bank stocks, 39 have dividend yields of more than 3%, with Ping An Bank having the highest dividend yield of 6.87%; the average dividend yield of the four major state-owned banks is 4.7%, of which China Construction Bank is 4.85%.

Huafu Securities believes that the driving factors of the banking sector's market this year are: first, the spread of dividend yield stock selection logic within the sector, with the high dividend strategy spreading from state-owned banks to small and medium-sized banks; second, the relaxation of real estate policies; and third, the market's expectation that the downward slope of banks' net interest margins will slow down and that fundamentals will soon bottom out.

Recently, many listed banks have disclosed their semi-annual reports, with steady growth in revenue and net profit and stable asset quality. The latest data from the State Administration of Financial Supervision and Administration shows that the total assets of the banking industry have continued to grow, and the overall risk compensation capacity is sufficient. At the end of the second quarter of 2024, the total assets of my country's banking financial institutions in RMB and foreign currencies were 43.31 trillion yuan, a year-on-year increase of 6.6%. In the first half of 2024, commercial banks achieved a cumulative net profit of 1.3 trillion yuan, a year-on-year increase of 0.4%.

It is worth noting that many banks have already determined their mid-term dividend plans. According to relevant announcements, Ping An Bank, Shanghai Rural Commercial Bank, Bank of Jiangsu, Nanjing Bank and other banks have stated that they will distribute mid-term dividends. Among them, Shanghai Rural Commercial Bank will distribute 2.305 billion yuan (tax included), and the mid-term dividend ratio in 2024 will be 33.07%; Ping An Bank will distribute a total of 4.774 billion yuan in cash dividends, accounting for 18.4% of the net profit attributable to the parent company in the consolidated financial statements. Looking back at the dividend plans of listed banks in 2023, Wind data shows that a total of 41 listed banks have a total dividend of 613.3 billion yuan, of which the six major banks have accumulated dividends of 413.3 billion yuan, accounting for nearly 70%. Industry insiders said that this year, under the encouragement and advocacy of the new "Nine Articles of the State", listed companies have increased their dividend efforts. At present, more than 17 banks have proposed that they will make mid-term dividends, and the dividend yields of related companies are expected to increase further.

Lin Yingqi, a banking analyst at CICC Research, believes that at present, the resonance between fundamentals and capital has driven the banking sector to achieve excess returns. "Despite the pressure on the operating environment, banks have achieved stable profits and dividends by reducing liability costs, as well as investment income and provision contributions. Under the guidance of 'keeping the bottom line of no systemic financial risks', policies are more supportive of stabilizing bank interest margins, asset quality and profitability. Therefore, banks can maintain a stable profit growth rate and high dividends, becoming scarce assets in the market. In addition, the inflow of funds from index funds and insurance has also promoted the rebalancing of the allocation of the banking sector."

From the perspective of funds, as of the end of the second quarter, active funds held a bank with a market value of 41.2 billion yuan, accounting for 2.77% of the active funds' market value, an increase of 0.31 percentage points from the end of the first quarter; index funds held a bank with a market value of 1.31 percentage points, mainly in large state-owned banks and joint-stock banks. In terms of insurance funds, according to data released by the State Financial Supervision and Administration Bureau, as of June 2024, the total stock and fund holdings of property insurance + life insurance (accounting for 96.6% of the total insurance funds) increased by 136.9 billion yuan and 169.3 billion yuan respectively from the beginning of the year, and banks became the largest holding direction of insurance funds.

Looking ahead to the next 3 to 6 months, Lin Yingqi believes that the price-to-book ratio of state-owned banks at around 0.6 times still has 15% to 30% room to reach the interim target valuation of 0.7 to 0.8 times, and the bank's dividend rate of around 5% may decline to around 4%. However, from a 6 to 12-month time dimension, investors need to pay attention to the impact of the downward trend in credit growth, the disposal of existing real estate debts, and residents' debt repayment tendency on fundamentals.

In addition, many institutions are optimistic about the banking sector in the long term. Dongxing Securities believes that there are more positive factors for the allocation of the banking sector, including the improvement of deposit costs, which is expected to accelerate the marginal improvement of asset quality expectations. In the medium and long term, the current central trend of interest rates is downward, and the pressure of "asset shortage" is expected to continue, and the allocation value of high dividend assets is outstanding. In the context of the expansion of passive funds and the guidance of medium and long-term funds into the market, there is strong support on the capital side, and the allocation value of the sector is optimistic.