Even if the index rises and warms up within a few days, the total market value of the ChiNext Board is still surpassed by the six major state-owned banks.

As of the close on August 28, the total market value of the six major state-owned banks, including Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China, reached a combined 8.71 trillion yuan, surpassing the total market value of the ChiNext Board, which stands at 8.68 trillion yuan.

Behind the reversal in market value, the bank sector index (882115.WI) has been on an upward trend this year, with a cumulative increase of 27.34% to date. In contrast, the ChiNext index (399006.SZ) has been fluctuating and trending downward, with a decline of over 19% year-to-date.

The key to the divergence in trends may lie in the market's performance expectations and valuations. Industry analysts believe that the market's risk-aversion sentiment has been high recently, with investors preferring targets with low valuations, high dividends, and more stable performance.

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ChiNext's market value is surpassed by the six major banks

Although there was a slight pullback on the 28th, the total market value of the six major banks still exceeds that of the ChiNext Board.

As of the close on August 28, the total market value of the six major state-owned commercial banks, including Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China, reached a combined 8.71 trillion yuan.

According to data from Tonghuashun, the average increase for the six major banks this year has reached 30%. Among them, Agricultural Bank of China, Industrial and Commercial Bank of China, and Bank of Communications have seen a cumulative increase in stock prices of more than 30% this year; China Construction Bank and Bank of China have increased by 26.1% and 27.7% respectively within the year; even the Postal Savings Bank of China, with the smallest increase, has seen a significant rise of 18.3%. With the continuous rise, the total market value of the six major banks has grown from 6.64 trillion yuan at the end of last year to the current 8.71 trillion yuan, with an increase of more than 2 trillion yuan.

In the meantime, the ChiNext index has weakened and fluctuated to a lower position. As of today's close, the ChiNext index closed at 1531.45 points, with a total market value of 8.68 billion yuan, up 0.05%. Although there was a brief rise, currently, the ChiNext index is not only gradually approaching the lowest point of the year in February at 1482.99 points but has also essentially retraced to the levels of July 2019.

According to Wind data, the ChiNext index has fallen by more than 19% year-to-date, and its total market value has shrunk from 11.39 trillion yuan at the end of last year to the current 8.68 trillion yuan, with a reduction in market value of 2.71 trillion yuan.Under the fluctuation of market value, from August 27th, the total market value of the six major banks has exceeded the total market value of the 1,349 constituent stocks of the ChiNext Board.

Why is this the case?

What are the reasons behind the ChiNext Board's market value lagging behind the six major banks? Many interviewed institutional investors believe that this may be related to the performance and valuation of the sector.

Institutions generally believe that this year's bank stock market is based on the investment logic of low valuation and high dividend. Although it has gone through several rounds of increases, the banking sector is still in a state of low valuation. As of today's closing, the price-to-earnings ratio of the banking sector is only 5.92 times, and the price-to-book ratio is 0.62 times, with most bank stocks still in a state of being undervalued.

Wang Jian, the chief analyst of the financial industry at Guoxin Securities, believes that in the past two years, the performance of large banks has continued to decline, and the valuation has already reflected extremely pessimistic expectations. In November 2022, the PB valuation of large banks dropped to an extremely low position of about 0.45x.

Wang Jian analyzed that with the frequent issuance of real estate stability policies and the orderly progress of local government debt resolution, the expectation of bank credit risk has improved. Therefore, under the investment style where dividend strategy is dominant, large banks with "low valuation + high dividend + smaller performance fluctuations" are favored by low-risk preference funds.

Zhang Yi, CEO and Chief Analyst of iMedia Consulting, told Yicai that there are two main reasons for the reversal of bank stock market value. On the one hand, the market's risk aversion has been high recently, and investors are more inclined to targets with low valuation, high dividends, and more stable performance. Bank stocks are a typical representative that meets this characteristic, thus becoming a safe haven for the market. On the other hand, the improvement of the regulatory environment and the excess returns of bank stocks also provide strong support for the rise.

Zhang Yi further pointed out that in the long run, there is still room for expansion of bank stock market value. In terms of performance, although the performance of banks has been under pressure in recent years due to interest rate factors, there are still some growth points. According to research, in the field of corporate loans, the competitors of banks are venture capitalists. The interest rates of venture capitalists in recent years are about 2.5 to 3 times higher than those of banks. Therefore, most enterprises in need of funds in the near future will choose banks first, which is beneficial to the growth of bank performance. From the market perspective, for a period of time in the future, the market's risk aversion is likely to continue, and bank stocks may continue to be favored by funds.

Compared with bank stocks with stable market expectations, the targets of the ChiNext Board are mostly high market value high-tech companies, and their performance has fluctuated greatly recently.

From the recently disclosed mid-term reports, the performance of some ChiNext companies is not good. Choice data shows that there are 842 companies on the ChiNext Board that have disclosed performance express reports, with a total revenue of 1.31 trillion yuan for the disclosed companies, a year-on-year decline of 27.22%. The net profit of the disclosed companies is 101.2 billion yuan, a year-on-year decline of about 30%.At the same time, the valuation of the ChiNext board is relatively high. According to Choice data, in 2021, the price-to-earnings (P/E) ratio of the ChiNext board once exceeded 60 times, and the price-to-book (P/B) ratio was over 8 times. Although it has experienced several rounds of declines, as of the close on the 28th, the P/E ratio of the ChiNext board was 23.13 times, and the P/B ratio was 2.99 times, still significantly higher than the banking sector.

An industry insider told the First Financial Daily reporter that as a sector index representing innovative and growth-oriented individual stocks, the ChiNext index consists mostly of high market value high-tech companies, among which, the power equipment, pharmaceutical and biological, electronics, and communication stocks have a relatively high proportion. However, with the frequent adjustments in these industries in recent years, the ChiNext index has also performed relatively poorly. Secondly, the higher issuance P/E ratio creates an impulse for shareholders of ChiNext's restricted shares to sell and cash out, which can easily cause market fluctuations.

Which funds are buying bank stocks?

Behind the increase in market value of the banking sector and the decrease in the ChiNext board, in addition to market environmental factors, changes in incremental funds are also key.

Shen Meng, a director of Chanson Capital, analyzed to the First Financial Daily reporter that ChiNext stocks are mostly focused on by market investors, while as important index component stocks, bank stocks are more concerned by institutional investors. Therefore, when the index is low and continues to decline, institutional investors who are responsible for stabilizing the market will buy low-risk bank stocks, which not only ensures investment safety but also drives the index to rebound. The decline of the ChiNext board indicates that the expectations of market investors are weak, and when the economy undergoes a structural reversal, as investor confidence recovers, the ChiNext market will also improve.

Zhang Qi Yao, Chief Strategy Analyst and General Manager of the Strategy Research Center at Xingye Securities, believes that ETFs and insurance funds are important drivers of the rise in bank stocks this year. On the one hand, the high increase in premiums has driven a large inflow of insurance funds, bringing incremental funds to the market, especially to the bank sector, which is heavily held. As of the first quarter report of 2024, the proportion of bank holdings in insurance funds' heavy stocks was as high as 48.3%, an increase of 0.8 percentage points from the beginning of the year.

On the other hand, this year, ETF funds have significantly inflow and mainly increase their positions in the CSI 300. As the first major weighted industry in the CSI 300 index, banks have also significantly benefited. According to estimates, as of August 16, the net inflow of stock-type ETFs for the year was about 629.3 billion yuan, with broad-based ETFs being the core increment, with a net inflow of 635.9 billion yuan. Among the broad-based ETFs, the most inflow was for ETF products tracking the CSI 300 index, with a net inflow of about 447.7 billion yuan for the year, accounting for more than 70% of the total broad-based net inflow.

Unlike the influx of incremental funds into the banking sector, leveraged funds in the ChiNext field have been continuously withdrawing. As of August 27, the total margin balance of the ChiNext board was 210.235 billion yuan, a decrease of 1.057 billion yuan from the previous trading day. Among them, the total financing balance was 209.076 billion yuan, a decrease of 970 million yuan from the previous trading day, which has been reduced for six consecutive trading days, with a cumulative reduction of 4.169 billion yuan during this period.