On September 2nd, Caixin reported that after a continuous sharp decline in bank stocks, the A-share market rebounded across the board on the last trading day of August. Style switching divergence resumed, will banks perform well in September?

In the last three trading days of August, banks, which have recently hit new highs, underwent significant adjustments. The median decline among the 42 listed banks was -4.72%, with major banks leading the decline. Bank of Communications plunged 11.46%, while China Construction Bank, Agricultural Bank of China, Industrial and Commercial Bank of China, and Bank of China all saw declines of more than 7% during the same period. Even after the adjustment, bank ETFs still rank first in terms of year-to-date gains among domestic equity ETFs.

At the same time, on the last trading day of August, the mid-year reports of the four major banks were all disclosed. Whether there will be further actions by the national team after increasing their holdings at the end of 2023 is a focus of market attention. The mid-year reports showed that the national team chose to remain unchanged in the first half of the year, with no changes in the shareholding ratio of China International Capital Corporation. However, China Securities Investment Corporation increased its holdings of CM Bank in the first half of the year.

In terms of stock performance, Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of China, and China Construction Bank saw increases of 26.34%, 19.24%, 15.79%, and 13.67% respectively in the first half of the year. Following the national team's "homework", investing in banks is considered a reliable choice.

When bank stocks fell for one day, investors shouted "pick up passengers on the way back"; when bank stocks fell for two days, it was heard that all market bank analysts were excited; when bank stocks fell for three days, the market expressed the need to find the reasons.

The national team did not increase its holdings of the four major banks in the first half of the year, but increased its holdings of CM Bank.

Since the beginning of the year, high dividend stocks have been sought after, with banks being one of the YYDS choices and the best-performing sector in terms of year-to-date gains. Bank ETFs have a return of over 20% year-to-date, while the four major banks have seen an increase of about 30% year-to-date. Such a strong performance from the banks is rare.

As early as June of this year, the total market capitalization of Industrial and Commercial Bank of China surpassed Kweichow Moutai and once became the A-share market cap leader. As of August 29th, the total market capitalization of ICBC reached 2.21 trillion, currently second only to China Mobile. The total market cap of the four major banks is 729 billion yuan, an increase of 152 billion yuan compared to the beginning of the year's 577 billion yuan.

Bank stocks are strong, partly because the market dividend style is dominant, and on the other hand, the shareholding of the national team provides confidence. As the most significant incremental funds in the market, the national team not only continues to buy ETFs, but also buys the four major banks with equal emphasis.

According to statistics, since October 11, 2023, the four major banks have successively announced the acquisition by China Investment Corporation. By April 10th of this year, the four major banks have disclosed the shareholding of the national team. CIC increased its shareholding of Industrial and Commercial Bank of China by 287 million shares, increased its shareholding of Agricultural Bank of China by 400 million shares, increased its shareholding of Bank of China by 330 million shares, and increased its shareholding of China Construction Bank by 71.45 million shares.

After the shareholding increase, CIC's shareholding proportion of the circulating shares of the four major banks has further increased. Among them, the shareholding proportion of Bank of China has reached nearly 90%, while the shareholding proportion of Industrial and Commercial Bank of China and China Construction Bank is around 45%. Although CIC's shareholding proportion in China Construction Bank's circulating shares is only 2.79%, sovereign wealth funds such as China Securities Finance Corporation and CIC Asset Management still account for 22.82% and 5.18% of the circulating shares respectively. The overall proportion of the national team is not low.

However, in the first half of this year, faced with the impressive gains of the four major banks, CIC chose to hold steady. China Securities Finance Corporation, on the other hand, increased its holdings of CM Bank and became one of the top ten circulating shareholders of the bank, with a shareholding proportion of 2.54%, and a market value of nearly 18 billion yuan in the first half of the year.

Will the adjustment of the banks continue?

Regarding whether the banks will continue to adjust, a chief analyst of a brokerage shared the conclusion of weekend discussions: Most of them take a wait-and-see attitude towards the banks in the short term, but they are not completely bearish on the banks at this moment.

"The rise of bank stocks is a passive long position, which is the most intuitive pricing phenomenon under the passive development wave represented by the CSI 300 ETF in recent years. Especially, the four major banks are not simply high dividend stocks, but are more based on the situation of CSI 300 ETF over-allocated to banks by more than 10% and institutional under-allocation, and there is no obvious selling pressure and other trading factors. This can be indirectly confirmed by the fact that CM Bank is significantly inferior to the four major banks." The above analyst believes that in the short term, bank stock prices are facing pressure, but if the medium-term logic is based on the rise of passive long positions, then the medium- to long-term logic of banks is unaffected.

This view is also recognized by the Bank Analyst team of China International Capital Corporation. Its research report believes that the logic of the bank's rise, in addition to dividends and the increase in the market share of state-owned banks, is also an important reason for the high index weight and low fund allocation.

Lin Yingqi estimates that the net purchase of index stock public funds this year is 230 billion shares, while the net redemption of active stock funds is 140 billion shares. The sector with high index allocation and low public fund allocation has shown obvious excess returns. The banking sector, as the largest industry in the CSI 300 Index (with a weight of 13%), has a stock fund allocation of only 2%. In the past two years, the bank index has shown significant excess returns, especially for state-owned banks, and long-term fund allocation rebalancing has driven relative bank returns.

However, the future performance of the four major banks is not without pressure. The expectation of a rate cut for existing loans is believed to be the main cause of the sharp drop in bank stocks on the last day of August. Brokers also discussed this speculation over the weekend, and China International Capital Corporation's research report provided an estimate. Assuming that the interest rates for all mortgage loans are adjusted to the level of the newly issued lending rates through transfer mortgages and self-adjustment, it is estimated that the average interest rate for existing mortgages will be reduced by about 60 basis points, resulting in an estimated annual reduction of borrower interest payments of about 240 billion yuan, which exceeds the scale in 2023.

Under this assumption, it is estimated that the reduction in interest rates for existing mortgages will affect the banks' net interest margin by 7 basis points, operating income by 4%, and net income by 7%. It is important to note that state-owned banks have a higher proportion of mortgages than small and medium-sized banks, and they are more affected by the adjustment of existing mortgage rates.

Fund companies analyze the September trend of A shares.

With the adjustment of high-dividend stocks represented by banks, is the capital really shifting towards "high to low"? Or is it retreating from high-dividend stocks with existing bubbles? Fund companies, on the whole, are more cautious.

Golden Eagle Fund believes that overall, the rise at the end of August mainly comes from the change in domestic policy expectations and the positive changes in the peripheral industry. The volume of important indices at the bottom boosts market sentiment, but we also need to be vigilant against a situation similar to the market at the end of July, where after a short-term boost, the market returns to weakness due to no positive changes in the fundamentals and policies.

Zhong Ou Fund stated that in the scenario of economic recovery without the impact of total stimulus policies, the domestic market is expected to be dominated by structural trends. The rebound of the index is likely to be limited, and the short-term performance of the structural trends will be reflected in the convergence of sector valuations. Overall, oversold sectors may have higher short-term elasticity, while excessively crowded trading tracks are prone to sustained adjustments, even though these crowded trades still have more attractive fundamentals.

In the view of Caitong Fund, the overseas liquidity expectations are gradually becoming clear, and the market expects a high probability of the Fed cutting interest rates in September, the start of the overseas rate-cutting cycle might form a positive support for the A-share market, increasing the certainty of the market bottom rebound. However, the recovery of confidence needs time to be verified. There is a high probability of a phased and repeated repair process in the future.