Source: Zhitong Finance App

On September 20, the Hang Seng Index Company pointed out in the Index News that since August, mainland China has introduced a series of policies to support the economy. The measures include various aspects, including fiscal, monetary, housing, and even capital market measures. On September 15, the People's Bank of China lowered the reserve ratio of financial institutions by 0.25 percentage points, reducing the weighted average RRR of financial institutions from 7.6% to 7.4%. This downgrade is expected to release more than 500 billion yuan in medium- to long-term liquidity. It is another downgrade since March of this year. Lowering the RRR can effectively improve banks' lending capacity by releasing more deposits, which is beneficial to the performance of domestic bank stocks. In fact, credit to mainland China expanded again in August. New RMB loans reached 1.36 trillion yuan in August, far higher than 345.9 billion yuan in July, while the scale of social financing increased by 3.12 trillion yuan in August, also far higher than 528.2 billion yuan in July. It is also a favorable sign for domestic banks.

The Hang Seng Hong Kong Stock Connect Mainland Bank Index reflects the performance of domestic bank stocks listed in Hong Kong and tradable through Hong Kong Stock Connect. In terms of total return, as of September 19, the domestic banking index recorded a 4.3% increase in September, higher than the 0.9% decline in the market represented by the Hang Seng Composite Index. The Hang Seng Hong Kong Stock Connect Mainland Bank Index was launched in February 2017. Currently, the number of constituent stocks is 12. This domestic banking index not only outperformed the market this year, but its long-term performance was also excellent. Over the past 3 years, the cumulative total return of the Hang Seng Hong Kong Stock Connect Mainland Bank Index reached 19.9%, the annualized total return was 6.2%, while the annualized volatility was only 20%. In contrast, in terms of total return, the Hang Seng Composite Index had a cumulative decline of 22.4% over the period, or an annualized decline of 8.1%, with an annualized volatility of more than 25%. It is worth noting that bank stocks have always been known for their high interest rates and low valuations. As of September 19, 2023, the historical dividend rate of the Hang Seng Hong Kong Stock Connect Mainland Bank Index was as high as 8.4%, while the price-earnings ratio was only 3.4 times.

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