CITIC SEC: Bank stock fund holdings rebound from historic lows, defensive attributes attract capital

CITIC SEC released a research report stating that institutional holdings have rebounded significantly, and the valuation upward trend is expected to continue throughout the year. Since July, market style has rebalanced, the banking sector's performance has clearly recovered, with both absolute and relative returns recording good performance. Public fund institutional holdings also rebounded significantly by 0.92ppts to 1.93%, at the highest level since 2025Q3. The bank believes the sector is influenced by multiple resonating factors including market style, improved capital flows, and stable operating expectations. From an investment strategy perspective, bank stocks may see increased volatility in the short term due to capital flows, but the medium-term direction is driven by fundamentals and allocation-type capital. The sector is expected to be revalued from "high-dividend defensive assets" to "high-certainty equity assets," and the valuation upward trend is expected to continue throughout the year. CITIC SEC's main views are as follows: In 2026Q3, bank stocks' share of active fund heavy holdings was 1.93%, up 0.92ppts from 2026Q2, rebounding significantly from historic lows In Q3 2026, the banking sector experienced a notable recovery. Main considerations: 1) As the broad market fluctuated downward, market risk appetite declined significantly. Under style rebalancing, capital flowed to defensive sectors, and the banking sector's safe-haven attributes became evident; 2) The banking industry's 2026 interim reports showed optimistic net interest margin performance, stable asset quality, overall optimistic revenue, and continued profit growth recovery; 3) The peak of passive fund selling in the first half has passed, and both public fund institutional holdings and northbound capital holdings are at relatively low levels in recent years. As of end-Q3 2026, the CITIC BANK Stock Index (CI005021.WI) rose 16.8% from end-Q2 2026. Over the same period, the Wind All-A Index fell 13.3%, the CSI 300 Index fell 12.5%, and the STAR Composite Index fell 28.0%. The banking sector's absolute and relative returns both improved significantly. Bank stocks' share of active fund heavy holdings at end-Q3 2026 rebounded 0.92ppts from the end of the previous quarter to 1.93%, at the highest level since 2025Q3. Holdings ratios rose across all bank categories, with Bank of Ningbo ranking first in holdings ratio, and Bank of Ningbo and China Merchants Bank leading in ratio increases As of end-Q3 2026, state-owned banks, joint-stock banks, city commercial banks, and rural commercial banks accounted for 0.44%/0.42%/0.98%/0.09% of active fund heavy holdings, respectively, up +0.271/+0.175/+0.456/+0.025ppts from end-Q2 2026. Holdings ratios rose across all bank categories, with city commercial banks and state-owned banks showing more notable increases. 1) From the perspective of individual stock holdings ratios, Bank of Ningbo ranked first. At end-Q3 2026, the top five heavy holdings among bank stocks by active funds were Bank of Ningbo, China Merchants Bank, Bank Of Jiangsu, Industrial and Commercial Bank of China, and Bank Of Hangzhou, accounting for 0.39%/0.31%/0.19%/0.15%/0.11% of heavy holdings, respectively; their shares of heavy holdings within the sector were 20.13%/16.01%/9.91%/7.89%/5.58%, respectively, totaling 59.5% (the total at end-Q2 2026 was 59.5%), with holdings concentration essentially flat. 2) From the perspective of marginal changes, Bank of Ningbo and China Merchants Bank led in ratio increases. As of end-Q3 2026, the top three in holdings ratio increases were Bank of Ningbo, China Merchants Bank, and Bank Of Jiangsu, with holdings ratios up 0.167/0.139/0.098ppts from end-Q2 2026, respectively. In Q3 2026, 28 banks in the banking sector saw holdings ratio increases, while 7 banks saw declines. Northbound holdings rebounded significantly; southbound holdings rose slightly since October 1) In Q3, the banking sector's northbound capital holdings ratio rebounded significantly. As of September 30, 2026, the banking sector's northbound capital holdings ratio was 1.98%, up 0.44ppts from end-Q2 2026, ending the previous consecutive decline. By individual stock, as of September 30, 2026, China Construction Bank Corporation's northbound capital holdings as a percentage of circulating market cap ranked first among A-share listed banks at 7.9%. Besides China Construction Bank Corporation, Bank of Ningbo, China Merchants Bank, Ping An Bank, and Zhejiang Shaoxing RuiFeng Rural Commercial Bank had relatively high northbound capital holdings as a percentage of circulating market cap, at 7.0%/6.4%/6.2%/5.1%, respectively. 2) The banking sector's southbound capital holdings ratio rose slightly since October, hitting a new high for the year. As of October 26, 2026, the banking sector's southbound capital holdings ratio was 16.68%, up 0.42ppts from end-Q3 2026, slightly above the June high (16.64%). By individual stock, as of October 26, 2026, Bank Of Zhengzhou, Agricultural Bank Of China, Industrial and Commercial Bank of China, CQRC BANK, and Bank Of China had relatively high southbound capital holdings as a percentage of circulating market cap, reaching 54.9%/52.0%/40.9%/38.1%/35.7%, respectively. Risk factors Significant macroeconomic growth slowdown; bank asset quality deteriorating beyond expectations; regulatory and industry policy changes beyond expectations; execution of company development strategies falling short of expectations.