Is the banking sector still promising after the adjustment in the Hong Kong stock market?
In recent years, the performance of the Hong Kong and A-share markets has been sluggish, leading to a decline in risk appetite among investors. As a result, high-dividend stocks with relatively higher certainty have become a popular choice for many investors, driving significant gains in the high-dividend sector.
However, stimulated by the Fed's interest rate cuts and a series of major favorable policies, the Hong Kong stock market experienced a sharp rally from September 19 to October 7. Although the market has since corrected, investor risk appetite has improved compared to before. Meanwhile, recent interest rate and reserve requirement ratio cuts are expected to impact bank stocks.
Under these circumstances, are bank stocks and high-dividend investments still worth watching?
Bank Stocks Continue to Shine as the Market Strengthens
Bank stocks are one of the representative sectors in the high-dividend category.
Data shows that the Hang Seng Index has risen 20.19% year-to-date. Among bank stocks, most Hong Kong-listed banks have recorded gains, with more than half outperforming the Hang Seng Index. Notably, $DAH SING(00440.HK) surged 95.68%, ranking first; Dah Sing Banking Group also soared 77.80%, while Chongqing Rural Commercial Bank, $CM BANK(03968.HK), $CITIC BANK(00998.HK) all gained over 50%. China Everbright Bank, Jinshang Bank, Bank of East Asia, and BOCHK also posted gains, while only a few banks like Guizhou Bank and Bohai Bank declined.
Looking at performance since the market's notable strengthening on September 19, the Hang Seng Index has risen 16.02%.
Wind data shows that from September 19 to October 24, most bank stocks remained strong. Shengjing Bank, Zhengzhou Bank, Qingdao Bank, and seven others outperformed the Hang Seng Index,$ICBC(01398.HK), Agricultural Bank of China, $STANCHART(02888.HK) , and China Minsheng Bank mostly rose; only a handful like Luzhou Bank, Dongguan Rural Commercial Bank, and Jiujiang Bank declined.
Overall, while some bank stocks have been affected by the market's recent strength, their year-to-date performance remains robust.
High Dividends Remain a Key Theme, Bank Sector Favored
Looking ahead, are bank stocks and high-dividend investments still worth attention?
Guotai Junan Securities recently noted in a report that with global central banks easing and domestic policies signaling further support, Hong Kong stocks' fundamentals and liquidity expectations are improving, leaving room for upside. After the correction, Hong Kong stocks have re-entered a favorable allocation range. With liquidity easing and rising market sentiment, interest-rate-sensitive sectors with improving fundamentals are expected to rebound strongly.
Sector allocation recommendations: 1) Continue favoring Hong Kong internet leaders with EPS improvements; 2) Policy-supported, bottoming, or resilient interest-rate-sensitive sectors like healthcare/electronics/automobiles and some affordable consumption; 3) High dividends remain a long-term theme, focusing on stable fundamentals and improvement, alongside SOE restructuring opportunities in finance/materials/telecoms/energy/real estate.
Galaxy Securities also stated that despite recent volatility, Hong Kong tech stocks still offer investment opportunities amid Fed rate cuts and domestic policy support, particularly in internet leaders and consumer electronics.
Meanwhile, given geopolitical risks and the U.S. election, China's economic transition continues. With the AH premium, Hong Kong's high-dividend strategy remains attractive, especially for SOEs. The financial sector, benefiting from high dividends and policy support, is particularly promising.
CSC Financial analysts believe the recent rate cut, at the upper end of expectations, will pressure banks' 2025 net interest margins by 7bps, with cumulative adjustments impacting margins by ~10bps. However, historical deposit rate cuts may offset ~4bps. While margins face pressure, bank fundamentals will bottom in 2025, with potential valuation recovery as policies spur economic revival.
CITIC Securities highlights that bank stocks' value lies in their role as low-volatility assets in RMB portfolios. Policy-driven risk mitigation, especially for local government and property debt, underpins stable net asset values, despite margin pressures. The key driver is resolving major risks, not the costs incurred.
CITIC suggests reassessing bank stocks to capture policy dividends. In a broad rally, focus on high-certainty (low-risk), high-upside (valuation potential), and sustainable (beta + alpha) picks. Two themes: 1) High-dividend, high-capital large banks; 2) Growth stories with sustained alpha.
Conclusion
Institutional views suggest bank stocks and high-dividend investments remain promising. Notably, Postal Savings Bank, ICBC, HSBC, and China Merchants Bank were previously named to the "Hong Kong Top 100" list.
The 2024 Hong Kong Listed Companies Development Summit and 11th "Hong Kong Top 100" Awards, hosted by the HK Top 100 Research Center and co-organized by Caijinghua and Futu, will be held on November 11 at the Hong Kong Convention Centre.
It remains to be seen which bank stocks will make the new list.
Author: Yun Zhi Feng Qi
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