December 23 witnessed a strong rally in China’s banking sector, with stocks showing significant momentumBy the end of the trading day, the Shanghai-Shenzhen Bank Index had risen over 1%, and key constituents like Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), and Pudong Development Bank (PDB) all saw gains exceeding 2%. In fact, several individual stocks within the sector reached new historical highs during intraday tradingData reveals that over the past month, 34 out of 42 listed A-share banks saw their stock prices rise, reflecting an overall positive sentiment towards the sector.
This positive momentum is further underscored by the fact that many major A-share listed banks have seen their shareholders increasing their stakes in the banks through the secondary market, signaling growing confidence in the banks' future prospectsThis confidence comes at a time when banks in China are facing an environment of relatively low valuation levels, with many trading below their book value.
One notable example of this investor confidence came from Pudong Development Bank (PDB). On December 19, the bank issued an announcement revealing that its largest shareholder, Shanghai International Group (SIG), had purchased an additional 7.58 million shares through a block trade on the Shanghai Stock Exchange
SIG, which controls PDB through its wholly owned subsidiaries, raised its stake in the bank from 29.67% to 29.70%. Furthermore, SIG has announced plans to continue purchasing PDB shares over the next six months, with the aim of increasing its holdings by between 47 million and 94 million sharesThis move is seen as a clear sign of SIG’s confidence in PDB’s long-term prospects, especially given the current market conditions.
Similarly, on December 17, China Minsheng Bank (CMBC) disclosed that New Hope Chemical, one of its largest shareholders, had agreed to increase its stake in the bank through the secondary marketNew Hope Chemical has committed to purchasing up to 68 million shares of CMBC over the next six months, which would increase its holdings to just over 5% of the bankThis follows a recent purchase by New Hope Chemical on December 16, where it bought 17.61 million shares of CMBC, representing 0.04% of the bank's total shares
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Prior to this, New Hope Chemical and its concerted parties held 4.96% of the bank’s sharesThis ongoing purchase activity reflects a positive outlook on the future performance of CMBC.
Chengdu Bank also saw similar shareholder activity, with Xintianyi Company, a local Chengdu-based firm, increasing its stake by 5.18 million shares on December 10. Xintianyi is closely linked to Chengdu Financial Holdings Group, which in turn is controlled by the Chengdu State-owned Assets Supervision and Administration CommissionThe transaction reflects the strategic importance of Chengdu Bank in the local financial ecosystem and the backing it receives from local institutional investors.
In addition, Suzhou Bank reported that its major shareholder, Suzhou Guofa Group, had increased its stake by 48.92 million shares between October 9 and December 11, marking a 1% increase in its holdings
Suzhou Guofa Group’s active participation in the market highlights the belief in the bank's future growth prospects, despite the broader banking sector’s low valuation levels.
The trend of shareholder buybacks and increased holdings by major stakeholders and insiders is seen as a positive signal by market observersThe strategic moves by both controlling shareholders and internal executives indicate that the banks are expected to perform well in the futureThese actions not only reflect optimism but also send a message of confidence to the broader market, which can help enhance investor sentiment and boost the valuation of these banks.
Currently, despite the upbeat outlook, many banking stocks are still trading at low price-to-book ratios (P/B). As of December 23, the P/B ratio of the 42 listed A-share banks ranged from a high of 0.95 times to a low of 0.33 times
This underpricing suggests that investors are undervaluing the long-term potential of these banks, despite their relatively strong fundamentals and market dominance.
Moreover, as many banks in China are facing valuation levels well below their book value, there are growing expectations that these banks will recover their lost value over timeThis recovery is expected to accelerate in 2024, especially with the release of mid-term profit distribution plans by 23 banks, including major state-owned banks, which are set to distribute over 200 billion yuan in dividendsThis move is expected to appeal to income-seeking investors, particularly in an environment where bond yields are low, making high-dividend stocks more attractive.
According to a report by Xiangcai Securities, China’s banking sector is poised to benefit from a more supportive macroeconomic and capital market policy environment
The report notes that the stability of bank valuations, combined with the improving economic conditions, could further enhance the attractiveness of high-dividend banking stocksThe report also highlights the counter-cyclical role of major state-owned banks, which are expected to continue leading the charge in terms of asset growthAs China’s economy gradually recovers and the real estate market shows signs of stabilization, regional banks and joint-stock commercial banks are likely to see better performance and profit growth.
In the coming months, it is expected that the overall asset values of Chinese banks will see significant improvementWith economic activity set to pick up and regulatory measures expected to continue supporting the financial sector, the outlook for Chinese banking stocks appears positiveFurthermore, the ongoing investor confidence, as evidenced by the increased shareholdings from both internal stakeholders and institutional investors, suggests that market participants are expecting a recovery in the banking sector.
One of the primary reasons behind this optimism is the perceived stability of the sector
China’s large state-owned banks, in particular, are seen as having a strong ability to withstand market fluctuations and economic challenges, which is why they are attracting significant institutional interestThese banks are expected to play a leading role in driving economic growth in the coming years, making their stocks attractive to long-term investors.
In conclusion, the recent surge in shareholder buybacks, particularly among major institutional stakeholders, combined with positive dividend announcements, suggests that the banking sector in China is well-positioned for recoveryDespite the current undervaluation of many banks, market sentiment is shifting toward a more optimistic outlookAs economic growth picks up and real estate market conditions improve, the potential for higher profitability and asset value recovery in the banking sector looks increasingly likelyInvestors will be watching closely to see how these developments unfold, as they could shape the future of China’s banking industry for years to come.