The proportion of institutional holdings has clearly rebounded, and the valuation upward trend is expected to continue through the year, CITIC Securities said in a research report.
Since July, market style has undergone rebalancing, and the banking sector's performance has noticeably recovered, posting solid gains in both absolute and relative returns. Public fund institutional holdings also rebounded significantly by 0.92 percentage points to 1.93%, marking the highest level since the third quarter of 2025. The brokerage attributes this to a combination of market style shifts, improving capital flows, and stable operating expectations.
On investment strategy, bank stocks may see increased volatility in the short term due to capital flow influences, but the medium-term direction will be guided by fundamentals and allocation-oriented capital. The sector is expected to undergo a revaluation from "high-dividend defensive assets" to "high-certainty equity assets," and the valuation upward trend is anticipated to continue throughout the year, according to CITIC Securities.
Key takeaways from CITIC Securities
In the third quarter of 2026, bank stocks accounted for 1.93% of active fund heavyweight holdings, up 0.92 percentage points from the second quarter of 2026, representing a notable rebound from historic lows.
In the third quarter of 2026, the banking sector experienced a significant recovery. The main reasons include: 1) As the broader market fluctuated downward, market risk appetite declined markedly, and under style rebalancing, capital flowed toward defensive sectors, with the banking sector's safe-haven attributes becoming evident; 2) The banking industry's 2026 interim reports showed optimistic net interest margin performance, stable asset quality, generally upbeat revenue, and continued recovery in profit growth; 3) The peak of passive fund selling in the first half of the year has passed, and public fund institutional holdings and northbound capital holdings are simultaneously at relatively low levels in recent years.
As of the end of the third quarter of 2026, the CITIC Bank Stock Index (CI005021.WI) had risen 16.8% from the end of the second quarter of 2026. Over the same period, the Wind All-A Index fell 13.3%, the CSI 300 Index dropped 12.5%, and the STAR Composite Index declined 28.0%. The banking sector's absolute and relative returns both improved significantly.
Bank stocks' share of active fund heavyweight holdings rose 0.92 percentage points from the end of the previous quarter to 1.93% at the end of the third quarter of 2026, the highest level since the third quarter of 2025.
Holdings across all bank categories increased, with Bank of Ningbo Co., Ltd. (SZSE: 002142) ranking first in holding proportion. Bank of Ningbo and China Merchants Bank Co., Ltd. (SSE: 600036) posted the largest increases.
As of the end of the third quarter of 2026, state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks accounted for 0.44%, 0.42%, 0.98%, and 0.09% of active fund heavyweight holdings, respectively, up 0.271, 0.175, 0.456, and 0.025 percentage points from the end of the second quarter of 2026. Holdings across all bank categories increased, with city commercial banks and state-owned banks showing the most notable gains.
1) In terms of individual stock holdings, Bank of Ningbo Co., Ltd. (SZSE: 002142) ranked first. At the end of the third quarter of 2026, the top five heavyweight bank stocks held by active funds were Bank of Ningbo, China Merchants Bank Co., Ltd. (SSE: 600036), Bank of Jiangsu Co., Ltd. (SSE: 600919), Industrial and Commercial Bank of China Limited (SSE: 601398), and Bank of Hangzhou Co., Ltd. (SSE: 600926), accounting for 0.39%, 0.31%, 0.19%, 0.15%, and 0.11% of heavyweight holdings, respectively. Their shares of sector heavyweight holdings were 20.13%, 16.01%, 9.91%, 7.89%, and 5.58%, respectively, totaling 59.5% (also 59.5% at the end of the second quarter of 2026), with holding concentration essentially flat.
2) In terms of marginal changes, Bank of Ningbo and China Merchants Bank posted the largest increases. As of the end of the third quarter of 2026, the top three in holding proportion increases were Bank of Ningbo, China Merchants Bank, and Bank of Jiangsu, with increases of 0.167, 0.139, and 0.098 percentage points from the end of the second quarter of 2026, respectively. In the third quarter of 2026, 28 banks in the sector saw their holding proportions increase, while 7 banks saw decreases.
Northbound holdings rebounded significantly; southbound holdings edged up slightly since October
1) In the third quarter, the banking sector's northbound capital holding ratio rebounded markedly. As of September 30, 2026, the banking sector's northbound capital holding ratio was 1.98%, up 0.44 percentage points from the end of the second quarter of 2026, ending a previous consecutive decline. By individual stock, as of September 30, 2026, China Construction Bank Corporation (SSE: 601939) had the highest northbound capital holding as a proportion of tradable market value among A-share listed banks at 7.9%. Besides China Construction Bank, Bank of Ningbo, China Merchants Bank, Ping An Bank Co., Ltd. (SZSE: 000001), and Zhejiang Ruifeng Rural Commercial Bank Co., Ltd. (SSE: 601528) had relatively high northbound capital holdings as a proportion of tradable market value at 7.0%, 6.4%, 6.2%, and 5.1%, respectively.
2) The banking sector's southbound capital holding ratio edged up slightly since October, hitting a new high for the year. As of October 26, 2026, the banking sector's southbound capital holding ratio was 16.68%, up 0.42 percentage points from the end of the third quarter of 2026, slightly above the June high of 16.64%. By individual stock, as of October 26, 2026, Bank of Zhengzhou Co., Ltd. (SEHK: 6196), Agricultural Bank of China Limited (SSE: 601288), Industrial and Commercial Bank of China Limited, Chongqing Rural Commercial Bank Co., Ltd. (SEHK: 3618), and Bank of China Limited (SSE: 601988) had relatively high southbound capital holdings as a proportion of tradable market value, reaching 54.9%, 52.0%, 40.9%, 38.1%, and 35.7%, respectively.
Risk factors
A sharp downturn in macroeconomic growth; worse-than-expected deterioration in bank asset quality; unexpected changes in regulatory and industry policies; and underperformance in the execution of various companies' development strategies.
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