Is it time for bank stocks again? A large number of individual stocks have a price-to-book ratio of less than 0.5 times.

It may not come as a surprise to many that bank stocks have fallen below their net asset value.

However, the recent valuation of bank stocks has reached historically unprecedented levels.

According to Choice data, as of December 7th, all 42 listed banks in A-shares have fallen below their net asset value, with more than half of them experiencing a significant decrease in their price-to-book ratio (P/B ratio), and many of them now only worth 30% of their book value.

Could this be another opportunity?

More than half of listed banks have seen a significant decrease in their P/B ratio

According to Choice data, as of December 7th, all 42 listed banks in A-shares have fallen below their net asset value.

Among them, Bank of Ningbo has the highest P/B ratio, with only 0.82 times, while MINSHENG BANK has the lowest P/B ratio, with only 0.32 times.

There are 7 banks with a P/B ratio between 0.3 and 0.4, 12 banks with a P/B ratio between 0.4 and 0.5, and 8 banks with a P/B ratio between 0.5 and 0.55.

The average P/B ratio of the 42 listed banks in A-shares is only 0.52.

In terms of industry classification, the P/B ratio of the banking industry is 0.43, which is the lowest among the 60 major industries.

Different trends in the banking sector

In terms of different types, the stock prices of banks in the banking sector have shown divergent trends and valuations.

For example, the five major state-owned banks, such as Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank, have relatively stable P/B ratios this year.

On the other hand, except for China Merchants Bank, the P/B ratios of the other 9 listed joint-stock banks have fallen below 0.5.

At the same time, the valuations of most city and rural commercial banks have significantly declined.

Valuations are expected to further recover in 2024

Looking ahead to 2024, institutions generally maintain an optimistic view of the operating fundamentals of commercial banks and believe that valuations are expected to further recover.

Anxin Securities pointed out that in terms of valuations, the current valuations of individual bank stocks are low, and the degree of differentiation in valuations between stocks has converged significantly, approaching historical lows. Anxin Securities believes that during the process of economic transformation and upgrading, the improvement of economic growth momentum may not be synchronized with the reduction of risks. It is expected that the economic recovery in 2024 will be a process of wave-like development and twists and turns. Long-term economic transformation and short-term risk prevention will be in a delicate balance. For bank stocks, a turning point is gradually brewing.

Kaiyuan Securities believes that since July 2023, various departments have successively issued a series of policy documents to stabilize market expectations, laying a solid foundation for the "low valuation + high dividend yield" of bank stocks. Among them, the increase in holdings of the four major state-owned banks by China Investment Corporation will directly drive the recovery of bank stock valuations. As regulations on cash dividends become stricter, the market is expected to pay more attention to high dividend stocks. Among them, banking stocks, as representatives of high dividend stocks, are expected to attract more incremental funds.

Guangfa Securities believes that with the stabilization of total demand in the first half of next year and relatively matched credit supply, the financial market will experience intensified volatility. The market is likely to return to the pattern of focusing on major banks and flexible banking structural opportunities, with systematic beta opportunities concentrated in the first half of the year. The three main directions of focus are oversold rebound, recovery offensive, and revaluation of high dividend stocks.

CITIC Securities also stated that considering the current trend of moderate economic recovery, the performance of the banking industry in 2024 will be under short-term pressure due to the reduction of existing mortgage rates and the downward trend of LPR. It is expected that the valuation of banks will fluctuate within a range in the short term. Afterwards, we need to wait for continuous policy efforts to drive the economic inflection point and faster arrival of performance bottom, helping the valuation of banks break through the range and continue to rise, initiating a true valuation repair beta market.

Anxin Securities, Li Shuang, License No.: S1450520070001

Guangfa Securities, Ni Jun, License No.: S0260518020004

Wang Xianshuang, License No.: S0260520040002

Li Jiaming, License No.: S0260521080001

CITIC Securities, Ma Kunpeng, License No.: S1440521060001

Li Chen, License No.: S1440521060002

Kaiyuan Securities, Liu Chengxiang, License No.: S0790523060002