HK Stock Market Move | Inner bank stocks rise against the market trend, and commercial banks' net interest margin has increased for the first time in four years. Bank stock valuations are expected to shift towards PE logic.

Chinese banking stocks have risen against the market trend. As of the time of writing, CITIC BANK (00998) increased by 2.53% to HKD 7.7; CQRC BANK (03618) rose by 2.22% to HKD 6.44; Agricultural Bank Of China (01288) climbed by 2.05% to HKD 6.215; and Bank Of China (03988) went up by 1.6% to HKD 5.405. On the news front, the latest data from the National Financial Regulatory Administration shows that at the end of the second quarter this year, commercial banks' net interest margin was 1.41%, up 1 basis point from the low at the end of the first quarter. Looking at a longer time frame, this marks the first positive quarter-on-quarter growth in net interest margin for commercial banks in over four years since the first quarter of 2022. Analysis indicates that the improvement in net interest margin is primarily due to the continuous reduction in funding costs, as higher-interest fixed deposits mature and are repriced to lower interest deposits, effectively lowering liability costs. Huachuang Securities points out that the core logic of medium to long-term capital entering the market and public fund reforms remains unchanged, emphasizing the investment opportunities in the banking sector, where there is still a significant under-allocation. The high dividend and low valuation characteristics continue to be the hallmark of bank stocks, especially in the context of declining risk-free interest rates, which will continue to attract stable capital due to the bond-like attributes of bank stocks. With the stabilization of interest margins, a rebound in regional credit demand, and growth in non-interest income, some quality banks are expected to show strong performance elasticity, and valuations are likely to shift from PB logic to PE logic.