Under the combined policy package to stabilize the market, sector rotation has accelerated noticeably. On November 3, the A-share market continued to adjust, and the banking sector failed to maintain its gains amid the tech pullback, with some funds beginning to exit "old-economy" plays. On that day, the CSI Bank Index fell more than 2.7% at one point before closing down 0.39%. During intraday trading, state-owned major banks generally dropped more than 3%, with Industrial and Commercial Bank of China and Bank of China falling more than 4% at one point. The sector's total market capitalization fell by more than 72 billion yuan in a single day, with the six major banks being the main drag. Just the previous day, the CSI Bank Index had hit a new high in over a year. Along with the disclosure of third-quarter earnings and the shift in market style, institutional views on the subsequent performance of bank stocks have become increasingly divergent. Overall, in a phase where uncertainty remains significant, the appeal of dividend assets persists, but the increasingly crowded banking sector offers diminishing value for money. From a fundamental perspective, although many banks' third-quarter results further released signals of marginal improvement, some institutions believe the peak growth rate of the industry's full-year revenue has already passed, and the structural divergence between opportunities and risks will become more pronounced.
State-owned major banks generally adjusted on the 3rd, and the A-share market continued to shrink in volume. As of the close, the Shanghai Composite Index fell 0.82%, the Shenzhen Component Index dropped 1.21%, the ChiNext Index declined 2.73%, and the STAR 50 fell 3.81%, with more than 3,300 stocks declining across the market. However, with the gradual introduction and implementation of the regulatory authorities' combined policy package to stabilize the market, the shift in market style has accelerated noticeably. Although previously popular sectors such as semiconductors, components, CPO, electronic chemicals, and memory chips continued to adjust, bank stocks did not maintain their previous "seesaw" pattern. Sectors such as shipbuilding, pork, batteries, film and cinema, and gaming led the gains, which is also seen as a signal that funds are shifting from "old-economy" to "mid-economy" plays. As of the close, the CSI Bank Index fell 0.39%, with 29 of 42 bank stocks declining, of which 10 stocks fell more than 1%. The most closely watched were the state-owned major banks that had repeatedly hit new highs. On that morning, major bank stock prices generally plunged after the open. Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China saw intraday maximum declines of 4.26%, 3.75%, 4.55%, 3.73%, 5.6%, and 3.15% respectively, before oscillating back up. As of the close, except for Agricultural Bank of China, which closed in positive territory, the other five major banks all closed lower. Against this backdrop, the total market capitalization of the six major banks evaporated nearly 77.2 billion yuan for the full day, while the entire banking sector's total market capitalization fell by 72.3 billion yuan. As of the close that day, the total market capitalization of bank stocks stood at 15.89 trillion yuan, still up 2.7 trillion yuan from early July; the total market capitalization of the six major banks reached 11.23 trillion yuan, an increase of more than 2 trillion yuan from early July. The pullback in bank stocks had already shown signals on Monday (November 2). On that day, including Industrial and Commercial Bank of China, multiple stocks showed "double top" patterns, after which selling pressure intensified and prices plunged sharply. Specifically, on the 2nd, Industrial and Commercial Bank of China's share price briefly touched a new high of 8.88 yuan per share, but then plunged, ultimately oscillating to a slight close lower; Bank of Communications also briefly reached a high of 8.77 yuan per share. In addition, Bank of Nanjing (high of 12.55 yuan per share), Shanghai Pudong Development Bank (high of 10.22 yuan per share), Shanghai Rural Commercial Bank (high of 9.22 yuan per share), Bank of Xiamen (high of 7.11 yuan per share), Bank of Beijing (high of 5.99 yuan per share), and Zhangjiagang Rural Commercial Bank (high of 4.55 yuan per share) all exhibited so-called "double top" patterns. In terms of Hong Kong stock performance, state-owned major banks also showed clear pullback signals starting Monday. On that day, ICBC briefly touched a high of 8.18 Hong Kong dollars per share in early trading before plunging sharply. Other major banks showed similar patterns. Agricultural Bank of China (high of 7.075 Hong Kong dollars per share), China Construction Bank (high of 10.52 Hong Kong dollars per share), and Bank of Communications (high of 8.8 Hong Kong dollars per share) all hit new share price highs that day before plunging and pulling back.
Recently, regulatory authorities have introduced a combined policy package to stabilize the market through symposiums and other means, which is expected to boost market confidence. On the 3rd, the central bank conducted 100 billion yuan of the third batch of swap facility operations for securities, fund, and insurance companies, and recently announced that the stock buyback and increase-holding relending policy would be changed from a phased arrangement to a long-term institutional arrangement, with the relending rate lowered to 1%. Related measures have sparked market speculation that institutions are taking the opportunity to adjust and rotate positions, and profit-taking pressure on bank stocks has risen noticeably. Since July, risk-aversion sentiment in the market has intensified, and bank stocks, as a typical defensive sector, have risen all the way. The CSI Bank Index rose nearly 19% in four months, while the Shanghai Composite Index fell more than 12% over the same period, and the ChiNext Index and STAR 50 fell more than 43% and 46% respectively. During this period, multiple state-owned major banks hit new share price highs. As of Monday's close, Bank of Communications had cumulatively risen 36.76%, China Construction Bank had risen 27.78%, and Bank of China, Agricultural Bank of China, and Industrial and Commercial Bank of China had all risen more than 25%. CITIC Securities believes that structurally, the AI industry trend is still upward, investment intensity may slow marginally, and its crowding-out effect on other economic sectors is expected to weaken; at the same time, non-AI sectors have experienced relatively thorough valuation adjustments, and next year positive factors such as falling overseas interest rates, easing renminbi appreciation pressure, and domestic demand policy efforts are expected to gradually emerge, driving broad structural repair opportunities for non-AI sectors. Overall, as market expectations gradually recover and the capital ecosystem continues to improve, the equalization trend of A-share market conditions and the expansion of market breadth are worth anticipating. However, there is currently intensifying market divergence over whether bank stocks have already peaked. A senior investor told Yicai that in the short term, as bank stock prices have risen rapidly, the dividend yield advantage has been noticeably weakened. After a round of adjustment, there are more cost-effective choices available in the market, and they had already made position rotation operations at an earlier stage of this market rally.
Are positive supports weakening?
In addition to the capital side being affected by risk-aversion sentiment, continuously improving fundamental expectations have also provided important support for bank stock performance. Now, with the disclosure of banks' third-quarter reports, the market has short-term entered a favorable policy vacuum period. From the third-quarter reports, the banking industry's fundamentals show a trend of further improvement. "Overall, in the first three quarters of 2026, listed banks' net profit increased 3.7% year-on-year, up 0.3 percentage points from the first half; in the first three quarters, pre-provision profit and operating revenue increased 10.8% and 7.8% year-on-year respectively, up 1.3 percentage points and 0.4 percentage points from the first half," said Lin Yingqi, a banking analyst at CICC. Bank profits are recovering quarter by quarter, mainly benefiting from stable asset growth and interest margins, as well as contributions from other non-interest income. Taking state-owned major banks as an example, data shows that in the first three quarters of this year, the six major banks together achieved operating revenue of 2.98 trillion yuan, an increase of approximately 256.8 billion yuan from the same period last year, up 9.44% year-on-year; net profit attributable to shareholders was 1.14 trillion yuan, 65.869 billion yuan more than the same period last year, a year-on-year increase of 6.14%. Overall, each bank's third-quarter operating conditions further improved, with single-quarter performance generally better than the first half. Among them, Agricultural Bank of China and Bank of Communications saw single-quarter net profit attributable to shareholders growth exceed 10%. The stabilization of net interest margins is an important factor in this round of fundamental repair, mainly driven by the decline in liability costs catching up with the decline in interest-earning asset yields. However, as the peak period for time deposit maturities passes, the pace of marginal interest margin improvement is also expected to slow. Coupled with intermediary business income being affected by market fluctuations, unstable investment returns, and pressure on retail asset quality, subsequent concerns remain. "The low base of investment income is the main driver of revenue improvement, but considering the increased risk pressure driven by economic trends, divergence among banks is still intensifying. From the semi-annual reports to the third-quarter reports, we have seen some banks experience non-linear declines in performance. Essentially, this is the late-cycle characteristic of bank performance, so in stock selection we need to use quality factors as the bottom line, because quality factors determine the stability of dividends, especially at a time when credit risks are accelerating their exposure," judged Ni Jun, chief banking analyst at GF Securities. From the perspective of bank revenue, looking ahead to next year, the high point of revenue (growth) has most likely already appeared. He further analyzed: "The high point of interest income driven by volume and price has already been seen. From the perspective of non-interest income, the low base effect will also fade, the improvement in fee income for some banks driven by economic and risk asset activity has already slowed, and the space for provision write-backs under a credit risk exposure environment is also limited. Quality factors depend on risk control capabilities on the one hand, and on the regional economic environment on the other. Due to differences in internal and external demand, regional economic structural divergence mainly depends on differences in export dependence." Lin Yingqi also emphasized the need to pay attention to performance divergence among banks. On the one hand, major banks' profit growth overall exceeded expectations, with third-quarter single-quarter net profit for major banks rising 7.7% year-on-year, up 1.4 percentage points from the second quarter, mainly due to stable interest margins and continued growth in non-interest income; on the other hand, joint-stock banks and regional banks saw third-quarter net profit growth of -3.4% and -1.7% respectively, with profit growth both negative. "The slowdown in profit growth for small and medium-sized banks is mainly because some banks increased efforts to dispose of existing assets, and the rise in provision growth dragged down profits." Wind data shows that bank stocks are still in an overall below-net-asset condition, but valuations have clearly recovered from before this market rally started. Taking state-owned major banks as an example, the median PB of major banks is now close to 0.8 times, compared with less than 0.7 times in early July. In terms of dividend yield, the median dividend yield of the 42 listed banks is still above 4%, but it has fallen by about 0.5 percentage points from early July.
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