August 27, 2024 (InvestinChina.asia) – China’s six largest state-owned banks have seen their combined market capitalization surge past the total value of the entire ChiNext index, marking a significant milestone for the country’s financial sector.
The total market cap of the six major banks — Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China — has risen from 6.64 trillion yuan at the end of last year to 8.79 trillion yuan currently, an increase of over 2 trillion yuan.
In contrast, the ChiNext index, which tracks the performance of the ChiNext Board (often referred to as China’s Nasdaq), has fallen 19.07% this year. Its total market cap has shrunk from 11.39 trillion yuan at the end of last year to 8.67 trillion yuan now.
Today, the A-share market opened lower and trended downward, with the Shenzhen Component Index and the ChiNext index both hitting new lows during the adjustment. By the close, the Shanghai Composite Index fell 0.24%, the Shenzhen Component Index dropped 1.11%, and the ChiNext index declined 0.94%. Despite the broader market weakness, bank stocks continued to perform strongly, with market caps exceeding 1 trillion yuan for ICBC, CCB, ABC, and BOC.
According to data compiled by Caixin, three of the six major state-owned banks have seen their share prices rise by over 40% this year. The biggest gainer among them is Bank of Communications, with a cumulative increase of 46.92%. Even the smallest riser, Postal Savings Bank of China, has gained 25.44% year-to-date.
The strong performance of bank stocks can be attributed to their attractive dividend yields and substantial inflows of funds. As of August 20, despite significant share price increases, the dividend yield of bank stocks remains around 5%, offering a premium of about 300 basis points over risk-free rates. Compared to traditionally high-dividend sectors such as utilities and transportation, bank stocks offer higher and more stable yields, making them unique in the market. According to a recent report by China International Capital Corporation (CICC), the current price-to-book ratios of large state-owned banks are around 0.6 times, suggesting potential upside of 15-30% to reach target valuations of 0.7 to 0.8 times.
The “National Team,” represented by Central Huijin Investment, has been a driving force behind the rise in bank stocks. Since Huijin announced its stake increase in four major state-owned banks on October 11, 2023, followed by another round of increases in April 2024, the banks have received additional support. Furthermore, broad-based indices like the CSI 300 and SSE 50 have seen increased investment, which benefits the banking sector as well.
Meanwhile, the performance of the ChiNext index has been disappointing. The top ten companies by market cap on the ChiNext Board now include only eight firms valued at over 100 billion yuan. The largest, Contemporary Amperex Technology (CATL), has a market cap of 807.18 billion yuan, while Mindray Medical International comes in second with a market cap of 285.72 billion yuan. Notably, the once-dominant ophthalmology specialist Aier Eye Hospital Group has fallen below the 100 billion yuan mark, with a current market cap of 85.16 billion yuan.
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