Investment star "rare as Morningstar" originated from bank stocks.
The rapid rise of the banking sector recently has left even industry insiders unclear about the reasons behind it.
But this is the reality, as a number of banks such as Shanghai Pudong Development Bank, Bank of Shanghai, Bank of Jiangsu, Agricultural Bank Of China, Industrial And Commercial Bank Of China, Bank Of Chengdu, China Construction Bank Corporation, and Bank Of China have all reached their highest points since their listings on the A-share market.
Taking the Industrial And Commercial Bank Of China as an example, the bank's latest adjusted price has exceeded 7.2 yuan, well above the peak stock price when the SSE Composite Index was at 6000 points (see chart below).
This is just a glimpse of the recent surge in banking stocks.
The A-share Banking Index compiled by WIND (covering 42 listed banks in A-shares) recently hit a historical high, and the total market capitalization of the A-share banking sector surpassed the 10 trillion yuan mark during trading.
After a long period of being "questioned", "underestimated", and "ignored", banking stocks seem to have truly begun an unprecedented "value discovery journey".
For the A-share market, the adjustment of the valuation center for such a colossal industry worth tens of trillions will undoubtedly be a significant and consequential matter.
The "iron tree" has bloomed.
On May 14, 2025, the bank sector in the A-share market reached a milestone moment—its total market value exceeded 10 trillion yuan, setting a historical record (as shown in the figure below).
This figure not only indicates that the banking industry’s core position in the national economy has been further solidified in recent years, but also reflects that under the combined efforts of multiple markets, the bank stocks, representing the "large financial sector," are facing an unprecedented "revaluation opportunity."
Taking the Industrial and Commercial Bank of China as a representative example, this stock, which was listed in October 2016, has now entered its 20th calendar year.
In the nearly 20 years past, the Industrial and Commercial Bank of China has risen 7.16 times from its lowest price in 2016 (which means it grew to 8.16 times its lowest price).
If roughly dividing the 20-year trend of the Industrial and Commercial Bank of China into three doubling periods (excluding the super volatile period at 6000 points).
About the first nine years (before the end of 2014) saw the first doubling.
Another eight years (by the end of 2022) doubled once again;
Then, within three years, it doubled for the third time.
Some bank stocks have quietly and silently achieved "price discovery."
The policy "dividend effect."
From a market perspective, the "revaluation" of bank stocks somewhat aligns with the current era of economic development.
There are views that the rapid valuation recovery of bank stocks in this round began with the policy shift in 2023.
On the one hand, as the risks in the real estate industry gradually "clear away," the policy level has significantly improved the expectations of bank asset quality through measures such as targeted blood transfusion to real estate companies and the collection and replacement of hidden debts for indemnificatory apartments under the "three no less than" principle.
On the other hand, the introduction of the "New National No. 9 Policy" in 2025 emphasizes the importance of investor returns to a great extent. Various regulations advocate and highlight the dividends of listed companies and shareholder returns, which are highly aligned with the high dividend characteristics of bank stocks.
Thirdly, after the revision of the "Insurance Funds Utilization Management Measures", the risk indicators for insurance investment in equity assets have been relaxed, allowing for the use of OCI and other models for cost valuation of long-held equity assets. This has significantly increased the demand for insurance capital allocation to bank stocks, with at least five instances of insurance companies buying into bank stocks recorded in the first half of 2025.
"Tools for stabilizing market expectations"
Another situation that cannot be overlooked is the active market entry by so-called "stabilization funds" represented by the National Council for Social Security Fund in recent years, which helps stabilize market expectations.
The latter likely leads to at least 1,000 billion yuan in new subscriptions, directed towards various broad-based ETFs represented by the China Universal CSI 300 ETF.
It is well known that the financial sector represented by banks has a significant share within broad-based indices.
For the largest in the industry.Index FundTaking the HTSC 300ETF (510300) as an example, this fund held 81.8 billion yuan in various financial stocks by the end of the first quarter of recent years, accounting for 24% of the fund's portfolio.
This means that for every 4 yuan of new subscriptions, 1 yuan must be invested in large finance.
The new assessment mechanism for public funds cannot be ignored.
Another potential huge influencing factor is the reform of the assessment mechanism for public funds.
According to the latest released "Action Plan to Promote High-Quality Development of Public Funds", future assessments of actively managed equity funds will be highly linked to "long-term benchmark performance".
This means that the investment style that previously ignored the "benchmark" index may face challenges, and more and more fund managers are beginning to value the comparison between their net value and the benchmark.
The latter is likely to drive fund managers to focus on investing in financial stocks and bank stocks.
Taking the commonly referenced CSI 300 Index as an example, as of the latest quarter-end, the weight of large financial stocks accounts for 24%, and the trillions of yuan in actively managed equity funds that have long underweighted bank stocks may possibly "revalue" financial stocks.
Public funds have been too "cold" in their allocations.
So, how much of a deficiency do public funds have in their allocation to bank stocks?
Research Reports from Huafu Securities indicate that, from an individual stock perspective, actively managed equity public funds are currently underweight in the vast majority of bank stocks.
Data shows that by the end of 2024, actively managed equity public funds' allocation to A-share listed banks only accounts for 2.97% of their held positions by market value, which is far below the weight of banks in the performance comparison benchmark represented by the CSI 300.
Kaiyuan Securities provided data on "underallocation" this year: as of the end of March this year, the proportion of actively held bank stocks in equity holdings was 3.75%, about 10 percentage points lower than CSI 300.
HTSC also pointed out the key areas of underallocation: actively managed equity funds are deeply underweight in the banking sector, particularly the state-owned banks.
Among them, actively managed equity public funds hold 3.8% in the banking sector, significantly lower than the weights of 13.7% and 9.7% in the CSI 300 and CSI 800 Indexes, respectively.
The seller team estimated that for the CSI 300 Index constituents such as China Merchants Bank, Industrial Bank, Industrial And Commercial Bank Of China, Transportation Bank, Agricultural Bank Of China, Shanghai Pudong Development Bank, the active equity funds have a Hold Positions deviation of more than 0.5%, corresponding to under-allocated funds reaching 8-21 billion yuan.
Changjiang Securities recently believes that in the process of systematic valuation repair in the Banking Sector, it is expected that the demand for dividend assets and the factors of index weight will jointly drive the rise of related bank stocks.
The private equity is under-allocated and 'evenly matched'.
Zhitang noticed that actively selected stocks private equity funds are also in a low allocation state regarding banks.
Statistics from China Resources Trust show that as of the end of March 2025, the top five industries focused on by large-scale stock private equity with a hundred billion in scale were capital goods, consumer goods, materials, technology equipment, and CSI SWS Food & Beverage index. The Banking Sector ranks eighth, with a corresponding proportion of less than 3%, lower than the same period in 2024.
As mentioned above, the proportion of active equity public products heavily allocated to the Banking Sector is 3.8%, slightly ahead of private equity peers.
Most of the Famous Fund Hold Positions do not favor banks.
Looking at the group of fund managers in China, there are many famous fund managers who have made a name for themselves due to their heavy investments in banks, but the focus of investment has long since shifted.
Among public fund managers, Dong Chengfei, who was a key player at Xingquan Fund, was highly praised for his forward-looking heavy investments in bank stocks during the early years of his investment career. However, his current private product allocations have shifted towards semiconductors.
Among domestic value fund managers, there are not many who can afford to allocate a certain weight to bank stocks, and historically, those who preferred bank stocks, like Qiu Dongrong, have also exited the public offering front lines early.
Currently, it seems that among domestic fund managers, only a few, such as Wang Mingxu from GF Fund, consistently allocate a certain portion to bank stocks. The fund's quarterly report shows that Wang Mingxu's GF Domestic Demand Fund has maintained approximately 30% allocation to bank stocks.
In the private equity industry, there are few fund managers who maintain a clear allocation to bank stocks over the years, mainly represented by minority investors like Zhou Liang and Qiu Guolu from High Success Asset.
Among them, Zhou Liang revealed during a roadshow earlier this year that large cap blue chips are an allocation direction this year, and as the market's risk-free yield declines rapidly, investment value has emerged, including banks, home appliances, and autos.
In private institutions, there are also fund managers who clearly state they are 'abandoning' allocations to bank stocks. Li Bei from Banxia Investment is one example.
In May, she pointed out that due to related factors, the current risk of holding bank stocks outweighs the benefits. For more than a year, Banxia Investment held over 10% in bank stocks and has recently reduced much of this position, planning to further reduce it to zero when the opportunity arises.
It remains to be seen whether the strong performance of bank stocks can be sustained, but the process of institutions represented by public funds recognizing the benchmark and re-evaluating the allocation value of financial stocks may have inevitably begun.
