Analysis from CITIC SEC indicates that the period of heaviest net redemptions from Exchange-Traded Funds (ETFs) has concluded, with a marginal improvement in funding conditions now driving a recovery in the banking sector. Based on data from top ten shareholders, China Securities Finance Corp. has notably reduced its stakes in several joint-stock and regional banks since the start of 2026, while Central Huijin Investment Ltd. and Central Huijin Asset Management Ltd. have maintained their characteristic long-term, stable holdings.
At the ETF level, significant broad-based ETFs have experienced substantial net redemptions since 2026, leading to sustained net selling pressure on the banking sector overall. By the end of May 2026, the total value of bank shares held by 18 key broad-based ETFs with exposure to the banking sector stood at just 49.865 billion yuan, a decline of over 70% from the end of 2025. CITIC SEC believes the peak impact of ETF redemptions on the banking sector has passed, with limited room for further negative impact.
Central Huijin's Holdings Structure
The Central Huijin system holds bank shares through two primary channels: direct share ownership and indirect holdings via ETFs. Currently, Central Huijin utilizes five main account entities for its A-share investments: Central Huijin Investment Ltd. (the parent company), Central Huijin Asset Management Ltd., China Securities Finance Corp. and its affiliated asset management plans, ChinaAMC-Huijin Asset Management Single Asset Management Plan, and E Fund-Huijin Asset Management Single Asset Management Plan. These entities invest in A-shares through both direct holdings and ETF allocations.
At the individual stock level, Central Huijin Investment, Central Huijin Asset Management, and China Securities Finance Corp. are all among the top ten shareholders of multiple banks. Regarding ETFs, the banking sector holds significant weight in several major broad-based indices such as the SSE 50, CSI 300, and SSE 180. Consequently, the Central Huijin system holds a substantial indirect stake in bank shares through its large holdings of these broad-based ETFs.
Divergence in Shareholding Trends
Reviewing top ten shareholder data reveals that China Securities Finance Corp. has significantly reduced its holdings in certain joint-stock and regional banks since 2026. As of the end of Q1 2026, its positions in major state-owned banks remained largely stable, while adjustments in joint-stock banks and some city commercial banks were more pronounced.
In contrast, the bank share holdings of Central Huijin Investment and Central Huijin Asset Management have been relatively stable. By the end of Q1 2026, Central Huijin Investment maintained unchanged stakes in the 'Big Four' state-owned banks, and Central Huijin Asset Management's bank share counts also remained largely steady. Overall, while China Securities Finance has been a notable seller, the core Central Huijin entities continue to demonstrate a long-term, stable holding strategy.
Significant ETF Outflows
Key broad-based ETFs have seen massive net redemptions, resulting in sustained net selling pressure on the banking sector. An analysis of the subscription and redemption activities of 23 major broad-based ETFs, used to gauge overall market ETF flows, shows persistent net redemptions year-to-date. By the end of May, cumulative net redemptions reached 1.42 trillion yuan, with a peak in January seeing consecutive days of redemptions exceeding 100 billion yuan, and a single-day high approaching 150 billion yuan.
Furthermore, an examination of "large, irregular" net subscription/redemption events in these key ETFs—defined as single-day net buying or selling exceeding 10 billion yuan—reveals that their trends move significantly in sync with the banking index.
Post-Peak Recovery and Improved Fundamentals
The peak selling pressure is now considered to have passed, with marginal improvements in funding conditions contributing to a warming banking sector行情. Calculations show that by the end of May 2026, the 18 key broad-based ETFs with banking exposure held bank shares worth only 49.865 billion yuan. This represents a drop of over 130 billion yuan from the 182.382 billion yuan held at the end of 2025, a decline exceeding 70%. The view is that the peak negative influence from ETF redemptions is behind us, with limited scope for further冲击.
Since June, as volatility increased in the high-flying technology sector, the banking sector has shown signs of recovery. By the close on June 9, 2026, the CITIC Bank Index (CI005021.WI) had risen 2.24%. In the same period, the SSE 50, CSI 300, CSI 1000, and STAR 50 indices fell by 2.68%, 1.85%, 1.07%, and 5.04% respectively. The bank index outperformed these benchmarks by 4.93, 4.09, 3.32, and 7.28 percentage points, demonstrating both absolute and relative return potential.
Concurrently, as of June 9, 2026, the sector's average static dividend yield is approximately 4.4%, with some large-cap blue-chip stocks offering yields above 5%. The average static price-to-book (P/B) ratio stands at 0.58x, placing it within a high-value range.
Key Risk Factors
Potential risks include a significant slowdown in macroeconomic growth, worse-than-expected deterioration in bank asset quality, unforeseen changes in regulatory and industry policies, and companies failing to meet strategic implementation targets.
Investment Outlook
With marginal improvement in funding conditions, absolute returns appear promising. The analysis reiterates that the peak impact of ETF redemptions is over, limiting future downside. Looking ahead to the second half of the year, as banks enter a phase of fundamental recovery, sector valuation expansion is anticipated. Furthermore, sustained attractive dividend yields continue to appeal to low-risk-preference capital, suggesting a strong potential for absolute returns.
Regarding individual stocks, the recommended portfolio consists of companies that combine beta advantages with stock-specific strengths, offer significant valuation repair potential due to low valuations (particularly among large banks), and are entering stable growth cycles.
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