Zhixin Securities released a research report, stating that since Q2 2024, the overall stock price of the banking sector has maintained an upward trend, significantly outperforming the market. In April and June, the market showed a volatile trend, and the defense value of the banking sector was highlighted. In May, the positive real estate policy catalyzed a cyclical market, and the banking sector also benefited from economic recovery and the expectation of real estate risk recovery. Under the high prosperity performance of the sector, the proportion of banking stocks in active equity funds’ heavy positions continued to increase slightly, but the holding proportion of 2.45% is still relatively low in history (22% percentile since 2010). Looking ahead, based on the pace of economic recovery and the performance of macro finance, it is expected that the short-term market style still prefers defensive allocation, and the banking sector’s holding position is expected to continue to recover.

For individual stocks, two main lines are recommended: 1) stable and fundamental large banks with high dividends and low valuation fluctuations are more valuable for allocation; 2) under the growth logic, companies with sustained alpha have more potential for valuation improvement.

The main points of the Citic Securities research report are as follows:

As of Q2 2024, banks accounted for 2.45% of the heavyweight stocks held by active funds, up 0.21pct from Q1 2024.

Since Q2 2024, the overall stock prices of the banking sector have maintained an upward trend, significantly outperforming the market. In April and June, the market showed a volatile trend, and the defense value of the banking sector was highlighted. In May, the positive real estate policy catalyzed a cyclical market, and the banking sector also benefited from economic recovery and the expectation of real estate risk recovery. As of the end of Q2 2024, the CITIC Bank Stock Index (CI005021.WI) rose 6.6% from the end of Q1, while the Shanghai and Shenzhen 300 Index fell 3.7% during the same period. Under the high prosperity performance of the sector, the proportion of banking stocks in active equity funds’ heavy positions increased slightly compared to the end of the previous quarter.

Except for commercial banks, the holding proportion of other types of banks has increased, and state-owned banks have increased the most.

According to the weighted stock allocation of the public funds in Q2 2024, as of the end of Q2 2024, state-owned banks, joint stock banks, city commercial banks, and rural commercial banks accounted for 0.77%, 0.59%, 0.92%, and 0.17% of the main active equity fund’s heavy positions, respectively, compared to the end of Q1, they increased by 0.12 percentage points, decreased by 0.01 percentage points, increased by 0.05 percentage points, and increased by 0.06 percentage points, respectively. Among them, the proportion of holding positions of state-owned large banks has increased the most, and it has continued to increase for five consecutive quarters since Q1 2023. The holding proportion of joint-stock banks decreased slightly, with internal differentiation. The holding proportion of city commercial banks and rural commercial banks increased steadily.

CM Bank has the highest holding proportion, followed by state-owned banks and banks in high prosperity regions.

1) CM Bank has the highest holding proportion. As of the end of Q2 2024, the top five heavy positions of active equity funds' holding banks were CM Bank, Bank of Chengdu, Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China, and Bank of Ningbo, accounting for 0.54%, 0.29%, 0.25%, 0.24%, and 0.23% of the heavy stock positions, respectively. The respective proportions accounted for 21.9%, 11.7%, 10.1%, 9.6%, and 9.3% of the heavy positions in the banking sector, with a total proportion of 62.7% (compared to 62.3% at the end of Q1 2024), and the concentration of holdings remained basically unchanged.

2) State-owned banks and banks in high prosperity regions have the highest increase in holding proportion for the quarter. As of the end of Q2 2024, the top five holding proportion increases were Agricultural Bank of China, ICBC, Bank of Hangzhou, Bank of Chengdu, and Chongqing Rural Commercial Bank, with holding proportion increases of 0.08 percentage points, 0.05 percentage points, 0.05 percentage points, 0.03 percentage points, and 0.03 percentage points, respectively, compared to the end of Q1 2024. In Q2 2024, the holding proportion of 25 banks in the sector increased, and that of 11 banks decreased, with state-owned banks and banks in high prosperity regions having a higher increase proportion.

There was a slight decline in the northbound holding proportion, and the southbound holding proportion continued to increase.

Recently, the shareholding ratio (circulating market value) of northbound funds in the banking sector has slightly decreased. As of July 19, 2024, the shareholding ratio of northbound funds in the banking sector was 2.33%, -0.03pct from the end of the second quarter of 2024, and +0.06pct from the end of the first quarter of 2024. Among the banks held by northbound funds, the top five banks are Cm bank, Industrial and Commercial Bank of China, Industrial Bank, Agricultural Bank of China and Bank of Communications. In terms of a single quarter, the proportion of northbound funds held by Agricultural Bank of China, Shanghai Pudong Development Bank, Cm bank, Industrial and Commercial Bank of China, and Ping An Bank has increased significantly.

The shareholding ratio (circulating market value) of southbound funds in the banking sector continued to rise. As of July 19, 2024, the shareholding ratio of southbound funds in the banking sector was 11.10%, +0.24pct from the end of the second quarter of 2024, and +1.69pcts from the end of the first quarter of 2024, continuing the upward trend since the end of Q3 2023. The top five banks in terms of southbound funds holdings are China Construction Bank Corporation, Industrial and Commercial Bank of China, HSBC Holdings, Bank of China and Agricultural Bank of China. Compared with the end of the second quarter of 2024, the proportion of HSBC Holdings in the southward funds holdings has continued to decrease, while some state-owned banks and Cm bank have increased their proportions.

Investment strategy:

Macro-economic growth rate has fallen sharply; bank asset quality has deteriorated beyond expectations; regulatory and industry policies have unexpectedly changed; regional economic prosperity has declined; and each company's development strategy execution has fallen short of expectations.