Banking industry express: where is the excess return of bank stocks?

Bank stocks performed prominently in January this year. The main logic is hedging + steady growth of trading + performance exceeding expectations. In January this year, the Shenwan bank index rose or fell by 2.33%, ranking first among 31 Shenwan level industries. Compared with wind all a, CSI 300 and other major market indexes, it has obvious excess returns. Bank stocks have absolute returns and relative returns. Its logic is mainly reflected in the following three aspects:

① under the background of institutional position adjustment at the beginning of the year and the expectation of interest rate increase by the Federal Reserve, risk aversion increased. In January, the overall performance of the market was poor, and institutions would adjust positions at the beginning of each year. However, under the current situation of crowded trading at popular tracks, most growth style sectors fell significantly; In addition, at the beginning of the year, the expectation of the Federal Reserve to raise interest rates gradually warmed up, the market risk appetite fell, and the risk aversion attribute of bank stocks was favored by investors.

② the steady growth policy was gradually increased and implemented, and the market began to trade and grow steadily. The people's Bank of China lowered short-term and medium-term policy interest rates, driving the decline of 1-year and 5-year LPR, and there were substantial positive changes in mortgage interest rates; Liu Guoqiang, vice president of the people's Bank of China, also stressed at the press conference that "the monetary policy toolbox should be expanded to maintain total stability and avoid credit collapse". The "good start" of credit in January is also worth looking forward to. With the superposition of infrastructure development, a series of measures to stabilize the economy will be implemented faster, and the banking sector with high economic relevance will benefit more.

③ most of the bank performance letters disclosed at the beginning of the year exceeded market expectations. At present, most of the banks that have disclosed the performance express have performed well, which is mainly reflected in the steady improvement of asset quality, the steady increase of profit growth and the rise of roe. Pessimistic expectations about bank fundamentals based on the economic downturn have gradually eased.

For the banking industry, the recent positive signals have also increased:

\u3000\u30001. The national development and Reform Commission stated that there is still much room for macro policies to stabilize market expectations. In January, PMI data fell month on month, some indicators were lower than the critical value, and weak demand led to downward pressure on the current economy. In this regard, the policy of supporting the economy is expected to enter the intensive landing stage, In a recent interview with Xinhua news agency, the head of the national development and Reform Commission said: "policy efforts should be appropriately advanced... We should speed up the introduction of a series of policies and measures to implement the strategy of expanding domestic demand. We should study and put forward targeted measures to revitalize industrial operation in a timely manner. We should carry out infrastructure investment in an appropriate way in advance and strive to form more physical workload in the first quarter." In the period of "economic downturn and policy overweight", we need to focus on the amplitude and duration of the recovery of social finance growth in the future. For bank stocks, positive macro policies will become the catalyst for the valuation repair of bank stocks.

2.2021q4 the quality of banking assets in some regions continued to improve. According to the data disclosed by local banking and insurance regulatory bureaus, the asset quality of the banking industry in most regions has continued to improve, and the banking industry in some regions has achieved "double decline in non-performing loans". On the one hand, the disposal of non-performing loans in the banking industry has increased significantly in the past two years. The disposal of bad loans in the banking industry was 3.02 trillion yuan in 2020 and 3.1 trillion yuan in 2021, and the clearing of stock credit risks is accelerating; On the other hand, the economic recovery between regions is uneven, and the asset quality of banking industry in various regions has also been significantly differentiated. In fact, the pressure on the asset quality of banking industry in the Yangtze River Delta has been very small.

\u3000\u30003. Note interest rates rebounded and credit demand improved. The six-month state-owned bank note discount rate is used to represent the yield of bank notes, and the six-month interbank deposit certificate interest rate is used to represent the cost of bank liabilities. The difference between the two can be used to approximate the effective credit demand. Since 2014, the trend of the difference between the two is basically consistent with the credit demand index disclosed by the central bank.

Compared with the change trend of the difference between Bill interest rate and certificate of deposit interest rate in the past four years, the credit demand in the first quarter of 2021 was stronger and slightly better than that in the same period of 2019; After the second quarter of 2021, the credit demand is down and weaker than the seasonality; Since January 15, 2022, the credit demand has improved significantly compared with the first ten days of January, which is better than the same period in previous years.

\u3000\u30004. The real estate policy continued to relax, and the risk disposal progress of real estate enterprises has been accelerated. Since the fourth quarter of last year, the market has always been worried about the weak policy strength of the real estate industry, which has been transmitted to the pessimistic expectation of the quality of relevant loans invested by banks in the real estate industry. We think this concern seems reasonable, but we ignore the more important changes:

① under the long-term mechanism management framework of real estate, it is more to implement the territorial responsibility of the urban government. Combined with the local market situation, due to the implementation of real estate regulation by urban policies, the probability of total and overall real estate relaxation policies is not high, while local real estate relaxation policies are constantly introduced, which will avoid large-scale exposure of credit risks in the real estate industry.

② the risk disposal progress of medium and high-risk real estate enterprises has been accelerated. For example: 1) on January 26, Evergrande announced that it would strive to put forward a preliminary restructuring plan within the next six months; 2) According to the financial Associated Press, many state-owned enterprises have shown strong interest in China Olympic Park; 3) According to the securities times, the financial regulatory authorities convened several national financial asset management companies (AMC) to study AMC's participation in asset disposal, Project M & A and related financial intermediary services of venture real estate enterprises in accordance with the principles of marketization and legalization.

The "policy bottom" of real estate is transmitting to the "market bottom". According to Xinhua news agency, regulators require banks not to blindly withdraw and cut off loans for large real estate enterprises with risks and operating difficulties. Under the protection of policies, we believe that the probability of risk exposure of other real estate enterprises is decreasing.

\u3000\u30005. Institutions have low positions in bank stocks and trading is not crowded. By the end of 2021q4, the proportion of active public funds' positions in bank shares was only 3.38%, which was at the position quantile level of 27% since 2016. The proportion of institutional positions was low and not crowded at the transaction level, which was suitable for the allocation of newly issued funds.

\u3000\u30006. Since the beginning of the year, bank stocks in overseas markets have taken the lead in rising. Among them, the Hong Kong Banking index rose 11.71% in total, ranking third in the industry, with obvious excess returns compared with the Hang Seng Index, Postal Savings Bank Of China Co.Ltd(601658) , Bank Of Communications Co.Ltd(601328) , China Construction Bank Corporation(601939) and other gains were higher; In terms of U.S. stocks, Wells Fargo, Citibank and Bank of America all performed well.

From the past several rounds of bank stock market, Hong Kong stocks will be more sensitive. At present, H-share banks have stabilized and upward trend. For A-share banks, we think it is a very positive signal.

In the coming months, we believe that as the steady growth policy enters the intensive landing stage and the real estate policy is gradually relaxed, the opportunities are still far greater than the risks for the banking sector.

Individual stocks can be selected along two ideas: first, the valuation is low β Strong attributes, benefiting from the implementation of stable growth policies, and Industrial Bank Co.Ltd(601166) , Postal Savings Bank Of China Co.Ltd(601658) are mainly recommended; Second, have α Excellent logic and fundamentals, outstanding business model, and Bank Of Ningbo Co.Ltd(002142) , China Merchants Bank Co.Ltd(600036) , Jiangsu Changshu Rural Commercial Bank Co.Ltd(601128) are recommended.

Risk tip: the "good start" of credit is less than expected, and the risk exposure of the real estate industry is accelerated

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