On July 23, the A-share market was weak, with the Shanghai Composite Index falling by 1.65%, and both the Shenzhen Component Index and the ChiNext Index suffered significant declines.

In such a weak environment, the banking sector rose against the trend, with stocks like Qilu Bank, Chongqing Rural Commercial Bank, and China Construction Bank increasing.

Among them, Agricultural Bank of China (601288.SH), Industrial and Commercial Bank of China (601398.SH), and Bank of China (601988.SH) set new highs.

Notably, the "Bank of the Universe" Industrial and Commercial Bank of China was very popular, with both trading volume and turnover ranking first in the banking sector.

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Looking at the trend from the beginning of the year to now, the performance of bank stocks has been quite strong, with Nanjing Bank (601009.SH), Chengdu Bank (601838.SH), and Bank of Communications increasing by more than 40%, and eight other bank stocks rising by more than 30%; only Xi'an Bank, Lanzhou Bank, and Zhengzhou Bank have declined within the year.

It can be seen that whether it is the performance from the beginning of the year to now or today's single-day performance, the bank stocks in the A-share market are very eye-catching.

High dividend clustering, bank stocks benefit from the reasons, on the one hand, the continuous relaxation of real estate policies, through boosting the real estate market, reducing the cost of buying a house, and revitalizing the stock of housing, and other aspects have driven the bank stocks to strengthen in 2024.

On the other hand, the continuous strength of bank stocks is inseparable from the clustering trend in the A-share market.

As everyone knows, for more than a year, the A-share market has been popular with high dividend stocks, enjoying the happiness of stable dividends.

Bank stocks have always been regarded as preferred targets for stable dividends, especially state-owned large banks.

Data from Futu Niuniu shows that in terms of dividend yield TTM, Ping An Bank is over 7%, Industrial Bank is over 6%, China Merchants Bank is close to 6%, CITIC Bank, Industrial and Commercial Bank, and China Construction Bank are all over 5%.

Against the background of the continuous decline in financial management yields, the cost-effectiveness of bank stocks is more prominent.

It is worth mentioning that a report from CICC pointed out that in the past three months, Northbound funds have flowed into China Merchants Bank for 2.67 billion yuan (unless specifically pointed out, the following yuan refers to RMB), and into SPD Bank for 2.15 billion yuan.

Recently, Southbound funds have been flowing into BOC more, with a cumulative flow of 26.97 billion Hong Kong dollars in the past three months, while maintaining an inflow trend for other large banks.

HSBC Holdings has seen more outflows of Southbound funds, with a cumulative outflow of 7.66 billion Hong Kong dollars in the past three months.

Under the interest rate cut, there is still room for bank stocks to rise?

On July 22, the central bank announced that from now on, the 7-day reverse repo operation rate in the open market will be adjusted from 1.80% to 1.70%.

After the central bank announced the reduction of the 7-day reverse repo rate, the LPR rate also welcomed a synchronized reduction of 10 basis points, with a one-year period at 3.35%, and above five years at 3.85%.

The central bank announced two interest rate policy tools to cut interest rates on the same day, highlighting the macroeconomic easing signal.

CITIC Securities research report pointed out that behind the combination of interest rate cuts is to strengthen the policy attribute of the 7-day reverse repo rate, to sort out the interest rate transmission relationship, which is conducive to increasing the financial support for the real economy, while balancing the supply and demand of the bond market.

Huafu Securities researchers said that although the interest rate cut has a negative impact on the bank's interest spread from a static perspective, the impact is relatively controllable and within the market's expectations.

However, in the medium and long term, the interest rate cut is conducive to boosting credit demand, improving economic expectations, and thus benefiting the bank's fundamentals.

Looking forward, under the "stable growth" measures, the increase in the quality of bank loans is expected.

First, the active fiscal policy can better exert its effectiveness, and more project-related credit demand is expected to be driven.

Second, fiscal funds are also expected to focus more on expanding domestic demand.

In particular, the use of government bonds to promote consumption and investment will stimulate more effective demand, and the reduction in financing costs brought about by the interest rate cut will form a joint force, and is expected to stimulate more effective demand.

As the economy picks up, the quality of bank assets is also expected to be more solid.

We reviewed the bank sector's performance after eight interest rate cuts since the beginning of 2022 and found that the bank sector has a higher probability of absolute returns after the interest rate cut.

Researchers from Minsheng Securities believe that although the reduction of LPR will bring certain pressure to the bank's loan yield, the previous regulatory rectification of illegal "manual interest supplementation" and the reduction of deposit listing rates have already reduced costs on the deposit side, and this reduction also has a certain significance in reducing the deviation of LPR quotes.

Therefore, the overall impact on the bank's net interest spread may be relatively limited.

At present, more attention should be paid to the role of LPR reduction in boosting the demand for real entity financing, thus bringing a more positive economic expectation; the second is the further clarification of the monetary policy control framework, and the improvement of interest rate transmission efficiency that comes with it, the bank's deposit and loan pricing mechanism may be more market-oriented, which is conducive to the stability of the bank's medium and long-term interest spread.

The positive economic expectation and the stability of the medium and long-term interest spread lay a good foundation for the improvement of the bank's fundamentals, thus benefiting the valuation repair of the sector.

It is worth noting that CICC also issued a report pointing out that the second quarter of the bank stock public fund position and valuation situation.

The fund position of bank stocks is 2.64%, an increase of 0.28 percentage points from the previous quarter, mainly affected by the good performance of bank stocks.

From the beginning of the year to now, A-shares and H-shares of banks have risen by 26.3% and 19.4% respectively, with state-owned large banks and some regional banks performing well.

At present, the overall bank sector is still under-allocated by funds by about 10.5 percentage points, and the degree of under-allocation is at a relatively high level in history, indicating that there is still room for bank stocks to add positions.