Industrial Bank pointed out that focusing on active equity funds with performance benchmarks including the CSI 300 Index, by the end of 2024, the proportion of Bank hold positions in active funds is 3.81%, whereas the weight of the Bank Sector in the CSI 300 Index is as high as 13.67%, with a deviation close to 10 percentage points. Among them, individual stocks like CM BANK, Industrial Bank, Industrial And Commercial Bank Of China, Bank Of Communications, and Shanghai Pudong Development Bank have even larger underweight ratios.
On Wednesday, the A-share Bank Sector continued to gain momentum, reaching a new high not seen since mid-July 2015, with Agricultural Bank Of China, Bank of Shanghai, and China Everbright Bank each hitting historical highs during the trading day. The large financial sector surged, boosting the GEM Index and Shanghai Composite Index by over 1% in the afternoon.
On the news front, some analysts believe that new regulations for public funds will significantly promote the valuation recovery of A-share Bank stocks. Industrial Bank pointed out in the latest report on May 14 that the new public fund regulations are guiding asset allocation closer to the CSI 300 Index, and due to the substantial "allocation gap" with performance benchmarks, public funds will inevitably have to increase their weight in Bank stocks.
Data from Industrial Bank shows that focusing on active equity funds with performance benchmarks including the CSI 300 Index, by the end of 2024, the proportion of Bank hold positions in active funds is 3.81%, whereas the weight of the Bank Sector in the CSI 300 Index is as high as 13.67%, with a deviation close to 10 percentage points.
Huaxi also expressed a similar view, noting that according to the latest data (Q1 2025), the allocation ratio of public funds in the Bank Sector is approximately 3.49%, which is 9.99 percentage points lower than the weight in the CSI 300 Index, and 6.99 percentage points lower than the weight in the CSI 800 Index. Additionally, Sinolink believes that the new regulations for public funds are also expected to drive capital toward the brokerage sector.
In terms of individual stock allocation, with the trend of increased holdings in Funds, the previously underweighted Banks are expected to benefit more. Data from Industrial Bank shows a greater underweight ratio for individual stocks like CM BANK, Industrial Bank, Industrial And Commercial Bank Of China, Bank Of Communications, and Shanghai Pudong Development Bank.
New regulations for public offerings: strengthen the constraints of performance benchmarks.
According to a Research Report from Industrial Bank, the "Action Plan for Promoting the High-Quality Development of Public Funds" released by the China Securities Regulatory Commission on May 7 will change the running mechanism of the public fund industry. The core of the plan is to build an assessment system centered on fund investment returns, significantly enhancing the constraints of performance benchmarks.
The most critical changes include:
Performance benchmark constraints: for assessing fund managers, the weight of performance indicators in fund products must not be less than 80%. For products with performance below the performance benchmark by more than 10 percentage points over three years, their performance compensation should decline significantly.
Style drift regulation: funds deviating from the benchmark by more than 20% for more than a year will be closely monitored.
Industry configuration disclosure: Quarterly reports must detail the differences in industry allocation compared to the benchmark index and the adjustment plans.
Therefore, Industrial Bank expects that public funds will place significant emphasis on assessing fund performance and deviations from benchmarks in the future.
Bank stocks have encountered underweighting, and active Funds are expected to increase their Hold Positions in the future.
Industrial Bank focuses on performance benchmarks including the CSI 300 Index for active equity Funds, from the perspective of industry allocation.
By the end of 2024, the proportion of active Funds' bank Hold Positions is expected to be 3.81%, while the weight of the banking Sector in the CSI 300 Index is as high as 13.67%, with a deviation close to 10 percentage points.
From the configuration of individual stocks, Industrial Securities research data indicate:
CM BANK, Industrial Bank, Industrial And Commercial Bank Of China, Bank Of Communications, and Shanghai Pudong Development Bank are the bank stocks with the largest underweighting in the CSI 300 Index. CM BANK's Hold Positions deviation reaches 1.9%; Industrial Bank's Hold Positions deviation is 1.5%.
Under the new public fund assessment mechanism, active Funds are expected to increase their bank Hold Positions, reducing the deviation from performance benchmarks, where deeply underweighted bank stocks are expected to receive greater Capital Inflow, offering the most potential for valuation recovery.
