The difference between the dividend yield and the risk-free yield has widened, which also implies an enhancement in the potential allocation strength of Banks stocks.
According to Zhitong Finance APP, CITIC SEC released a research report stating that unexpected factors during the Spring Festival have already reflected in the market performance after the holiday. It is expected that starting next week, the market may reassess potential policy, economic, and industry changes that exceed expectations. In this context, investment in bank stocks will return to a logic based on fundamentals. The reassessment of the business model is the core contradiction in bank stock investment in the first half of 2025. It is suggested to pay attention to the absolute return opportunities from industry valuation increases. Additionally, the widening difference between dividend yield and risk-free yield also implies an enhancement in the potential allocation power of bank stocks.
Event: As of February 9, 2025, 13 listed banks have disclosed their performance reports; after the Spring Festival holiday, the money market funding situation has loosened somewhat.
The main viewpoints of CITIC SEC are as follows:
The disclosed performance shows that the banks are operating steadily, indicating that the fundamental landscape of the industry remains stable.
1) Operational capability highlights stability. As of February 9, 2025, 13 listed banks disclosed their 2024 performance reports, including 4 joint-stock banks and 8 urban commercial banks. The 13 banks' weighted average revenue/net income attributable to shareholders for 2024 increased by 2.2%/5.2% year on year, with an average ROE reaching 11.15% (a year-on-year decrease of 0.59 percentage points).
2) Asset quality remains stable. 11 listed banks disclosed non-performing loan ratio data in their performance reports, with the average non-performing loan ratio of the 11 banks reaching 0.96% at the end of 2024, a decrease of 3bps from the beginning of the year, indicating that credit quality is steadily improving.
3) High-growth areas of urban and rural commercial banks maintain positive profit growth. Among the 13 banks, 5 banks have a net income growth rate of over 10% in 2024. Except for one shareholding bank (SPDB), the other 4 (Qilu, Jiangsu Rural, Hangzhou, Jiangsu) are all urban and rural commercial banks in the eastern region.
After the festival, the financial situation marginally eased, and the "dividend yield - risk-free yield" expanded, enhancing the dividend attractiveness of the Sector.
1) This week, the funding rates have significantly declined, reflecting an improvement in liquidity patterns after the festival. As of February 7, the R007/1M national stock interbank certificate of deposit rate/1M government bond yield stood at 1.76%/1.71%/1.34%, with changes of -20.0bps/ -16.2bps/ -13.1bps compared to January 26.
2) The multidimensional disturbance factors in the capital market before the festival gradually fade, and the liquidity pattern in February is expected to remain stable. Influenced by the central bank's suspension of government bond purchases, tax period factors, and the Spring Festival holiday, the capital market faced some tightening in January. Looking ahead, considering that February is not a major tax payment month, residents' cash withdrawals before the Spring Festival returning, and the completion of the "credit opening red" initiative, the liquidity pattern may continue to stabilize.
3) The short-term capital market remains loose, coupled with the rebound in bank stock dividend yields, the advantages of bank stock dividend yields continue to manifest, enhancing the implicit allocation power of bank stocks.
Unanticipated factors during the Spring Festival gradually reflect in the market style after the festival. The next stage will focus on absolute return opportunities under the fundamental logic of the Sector.
1) The Sector performed excellently in relative returns before the festival, with allocation-driven funds boosting the H shares market. In January, the stock market experienced a turbulent decline, with the CITIC Bank Index rising by 0.21% (Csi 300 Index fell by 4.55%), demonstrating strong relative returns and defensive attributes. In addition, due to the more prominent dividend return rates of H shares, some allocation funds favored H shares more. In January, the market cap of H shares in the Hong Kong Stock Connect increased significantly by 0.51 percentage points to 13.07%, while the average premium rate of A shares decreased significantly by 3.04 percentage points, indicating a more positive rise in H shares.
2)春节期间超预期因素影响市场风格，节后板块相对收益走弱。本周中信银行指数下跌1.90%(沪深300上涨1.98%)，绝对和相对收益均有所走弱。DeepSeek引发投资者关注科技赛道风格，节后短期内市场成长风格占优，银行板块相对收益有所回落。
3) The next phase of sector investment will return to fundamental pricing logic. This week, the CSI 500 Index and the CSI 1000 Index rose sharply by 4.38% and 4.93%, respectively, and on February 7, the trading volume in the Shanghai and Shenzhen markets approached 2 trillion, setting a new high since 2025. The anticipated factors during the Spring Festival have gradually been reflected in the post-holiday market performance. In the next phase, investment in bank stocks will return to a logic based on fundamental frameworks, with certain absolute return opportunities existing in the banking sector.
Investment perspective: Return to fundamental investment logic, focusing on the valuation increase under the reassessment of business models.
The anticipated factors during the Spring Festival have already been reflected in the post-holiday market performance. It is expected that starting next week, the market may reassess the possible policy, economic, and industry changes that exceed expectations for the next phase. Against this backdrop, investment in bank stocks will return to a logic based on fundamental frameworks. The reassessment of business models is the core contradiction in bank stock investment in the first half of 2025, and it is recommended to pay attention to the absolute return opportunities associated with the upward valuation of the industry. Additionally, the difference between dividend yield and risk-free yield has expanded, which also implies an enhancement of the potential allocation strength of bank stocks.
In terms of individual stock combinations, two main lines are recommended: 1) Dividend contributions provide stable returns, selecting stocks with stable performance growth, stable dividend rates, stable asset quality, and low valuation volatility; 2) Companies with excellent business models, where valuation premiums are expected to return to normal ranges: select stocks with high ROE and strong certainty, where current valuation premiums are still at low levels.
Risk factors: significant decline in macroeconomic growth; bank asset quality deteriorating beyond expectations; regulatory and industry policy changes exceeding expectations; execution of various companies' development strategies falling short of expectations.
