Bank stocks are up! China Investment Corporation increases its holdings with a significant investment, showing remarkable results.

After the large capital injection on the first day, bank stocks rose!

On October 11th, China Investment Corporation (CIC) made a move to purchase a total of 477 million yuan in shares of the four major state-owned banks, including Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of China (BOC), and China Construction Bank (CCB). As expected, the A-share market showed strong performance on October 12th.

According to data from Choice, out of the 42 bank stocks listed on the A-share market, 40 of them saw an increase in price on October 12th. The largest increase was seen in Bank of China, which rose by 3.18%. Additionally, 10 bank stocks saw an increase of over 2%. Only Ningbo Bank and Chongqing Bank saw a decrease in price.

From various perspectives, CIC's increase in holdings has had a remarkable effect.

CIC Makes a Significant Increase in Holdings of the Four Major Banks on the 11th

On the evening of October 11th, the four major state-owned banks, ICBC, ABC, BOC, and CCB, announced that their controlling shareholder, China Investment Corporation (CIC), had increased its holdings in the banks through the Shanghai Stock Exchange trading system.

Based on the closing prices on October 11th, CIC's increase in holdings amounted to 94 million yuan for Bank of China, 136 million yuan for Agricultural Bank of China, 130 million yuan for Industrial and Commercial Bank of China, and 117 million yuan for China Construction Bank, with a total increase of 477 million yuan.

Among them, CIC increased its holdings of Agricultural Bank of China's A-shares by 37.2722 million shares. After this increase, CIC's holdings of Agricultural Bank of China's A-shares will account for 40.04% of the bank's total share capital.

CIC increased its holdings of Bank of China's A-shares by 24.8879 million shares. After this increase, CIC's holdings of Bank of China's A-shares will account for approximately 64.03% of the bank's total share capital.

CIC increased its holdings of Industrial and Commercial Bank of China's A-shares by 27.612 million shares. After this increase, CIC's holdings of Industrial and Commercial Bank of China's A-shares will account for approximately 34.72% of the bank's total share capital.

CIC increased its holdings of China Construction Bank's A-shares by 18.38 million shares. After this increase, CIC's holdings of China Construction Bank's A-shares will account for approximately 57.12% of the bank's total share capital.

The announcement stated that CIC plans to continue increasing its holdings of the four banks' shares on the secondary market in its own name within the next 6 months (starting from the date of this increase).

At least five precedents in history

CIC is a wholly state-owned company established with state capital in accordance with the Company Law of the People's Republic of China. Official information shows that CIC was established in December 2003 and represents the state in exercising the rights and obligations of the investor of key financial enterprises such as state-owned commercial banks.

In September 2007, the Ministry of Finance issued special treasury bonds and purchased all the shares of CIC from the People's Bank of China, using the shares as part of its investment in China Investment Corporation Limited, which was injected into China Investment Corporation. The important shareholder responsibilities of CIC are exercised by the State Council, and its board of directors and board of supervisors are appointed by the State Council and are accountable to the State Council. China Investment Corporation (CIC) is authorized by the State Council to make equity investments in key state-owned financial enterprises on behalf of the country. Its role is to exercise the rights and fulfill the obligations of the investor in these enterprises, with the aim of preserving and increasing the value of state-owned financial assets. CIC does not engage in any other commercial activities and does not interfere in the day-to-day operations of the state-owned financial enterprises it holds.

Looking back at history, there have been at least five instances of CIC increasing its holdings in bank stocks. The performance on the first day after the increase varied:

On September 18, 2008, when the Shanghai Composite Index fell to 2,200 points, CIC announced the purchase of shares in Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Bank of China (BOC), with a commitment period of one year. The market rose by 9.46% the next day.

On October 11, 2009, CIC once again announced the purchase of shares in ICBC, CCB, and BOC. The Shanghai Composite Index continued to rise for three consecutive months, with an increase of about 18%.

On October 11, 2011, CIC announced the independent purchase of shares in ICBC, Agricultural Bank of China (ABC), CCB, and BOC in the secondary market, and began market operations immediately. The market surged more than 3% the next day.

On October 10, 2012, CIC announced the purchase of shares in ICBC, ABC, CCB, and BOC, with a commitment period of 6 months. By April 2013, the accumulated funds reached over 2 billion yuan.

On June 13, 2013, CIC increased its holdings in ICBC, ABC, CCB, BOC, China Everbright Bank, and New China Life Insurance. In June of that year, when the Shanghai Composite Index fell to 1,849 points, CIC once again made a large-scale subscription of index ETF funds.

Boosting confidence

Regarding CIC's move this time, analysts such as Liang Fengjie from Zheshang Securities believe that CIC's proactive increase in holdings of the four major banks injects a strong "shot in the arm" into the market and is expected to catalyze the banking sector.

Liang Fengjie pointed out that due to factors such as loan interest rate cuts and risks in urban investment and real estate, the market has concerns about the profitability and dividend levels of listed banks represented by the four major banks. As the controlling shareholder, CIC is the one who "sees the bottom line" and its proactive increase in holdings demonstrates its recognition of the operating conditions and investment value of the four major banks, which is expected to alleviate market concerns. At the same time, in the second quarter monetary policy report for 2023, the People's Bank of China clearly stated that "commercial banks need to maintain a reasonable level of profit and net interest margin." It is expected that there will be more supportive policies on interest margins in the future, and the future profitability of listed banks is expected to remain relatively stable.

Yujin Xin, an analyst from Minsheng Securities, analyzed that the current banking sector has "four bottoms" (including performance bottom, policy bottom, position bottom, and valuation bottom), and the increase in holdings may accelerate the pace of valuation recovery in the sector.

According to Choice data, as of the close on October 11, out of the 42 bank stocks this year, 23 have declined. Among them, Nanjing Bank's decline exceeded 24%, and 10 other bank stocks fell by more than 10%. In terms of valuation, as of October 11th, the price-to-book ratio of the banking sector is only 0.6 times, which is at a historical low. Among the 42 bank stocks, 41 have a price-to-book ratio of less than 1, with 14 of them even lower than 0.5. The price-to-book ratios of Minsheng Bank, Huaxia Bank, Pufa Bank, and Guiyang Bank are all less than 0.4.

The team at Huafu Bank, including Guo Qiwei, believes that the recent public increase in holdings by China Investment Corporation (CIC) in state-owned major banks is not only a short-term positive for bank stocks from a funding perspective, but also carries significant symbolic and demonstrative significance. CIC's move reveals the regulatory authorities' firm confidence in the capital market and the fundamentals of banks, as well as the national-level protection of the capital market, which helps stabilize market confidence at this stage and restore the investment value of bank stocks.

License number of Liang Fengjie: S1230520100001

License number of Guo Qiwei SAC: S0210523080001

License number of Yu Jinxin: S0100521120003