The sector has been adjusting for a long time; what are the investment opportunities in bank ETFs?

Ask AI · How do undervalued bank sectors benefit from policy support and dividend attributes?

Recently, the market has experienced volatility, and the undervalued banking sector has shown strong “resilience” in resisting declines.

Wind data shows that as of March 18, over the past week, several bank ETFs (Exchange-Traded Funds) have ranked among the top in percentage gains within stock ETFs. Although there was a pullback today, many bank ETFs had previously experienced a “six consecutive days of gains” trend, highlighting their defensive qualities and attracting market attention once again.

Since the third quarter of last year, the banking sector has been under pressure overall, but some bank stocks have recently led a rebound. Respondents believe that ongoing geopolitical conflicts and declining market risk appetite have prompted investors to seek low-risk assets with more certainty. Dividend-related assets like banks are currently undervalued and are expected to continue attracting long-term capital inflows.

Bank ETF Rebound

During market fluctuations, undervalued assets perform notably better.

For example, among public stock ETFs, Wind data shows that as of March 18, the Shanghai-Hong Kong-Shenzhen Consumer Leaders ETF rose 4.18% over the past week, ranking first among similar funds. More than ten bank ETFs followed, with the best performing one gaining up to 2.22% in the period. Food & Beverage ETFs, Logistics ETFs, and Innovation Drug-related ETFs also performed well. In contrast, previously high-performing thematic ETFs such as Nonferrous Metals, Power Grid, Gold, and Chemicals experienced significant corrections during the same period.

Notably, several bank ETFs experienced a “six-day winning streak” from March 10 to March 17. Although there was a slight pullback on March 18, bank ETFs remained one of the better-performing stock ETF categories over the past week.

Looking at a longer cycle, bank-related ETFs have been in a prolonged consolidation since reaching a high point on July 10 last year. As of March 18 this year, the maximum drawdown exceeded 16%, diverging significantly from the broader market—while the CSI 300 Index increased by 16.7%.

In terms of net inflows, bank ETFs seem somewhat “forgotten” by funds. Since peaking on July 10 last year, the largest net inflow among all bank ETFs has been only 720 million yuan, with some products even experiencing net outflows.

In stark contrast, more than ten ETFs have seen net inflows exceeding 10 billion yuan, with hundreds of ETFs receiving over 1 billion yuan. The top inflow ETFs are mainly concentrated in themes like Power Grid Equipment, Securities, Chemicals, Nonferrous Metals, Satellites, and broad-based indices like CSI A500.

Dividend Value + Defensive Attributes

In the current structural market environment, growth assets are generally more favored by capital, while defensive sectors like banks receive relatively less attention. However, recent significant market volatility has prompted some funds to reassess low-risk assets.

Regarding the ongoing adjustment of the banking sector since last year’s third quarter, Feng Chengcheng, a fund manager at Huabao Fund, said that the sector has been under continuous capital pressure. Overall, this is mainly due to net redemptions of broad-based ETFs, which have put pressure on high-weighted bank stocks within these ETFs.

Feng Chengcheng noted that since the end of January this year, some high-growth stocks within the banking sector have led an upward trend, triggering rebounds in more stocks. “Since February, the banking sector’s performance has shown a seesaw relationship with sectors like Nonferrous Metals and Communications, which had previously experienced larger gains.”

Therefore, at this point, Feng Chengcheng believes that the previous adjustment in the banking sector has been sufficient. From fundamental certainty, earnings stability, dividend value, and defensive qualities, the sector now has positive factors for a potential rally.

“Next, more funds, especially long-term allocation funds, are expected to consider deploying into banking and dividend-oriented ETFs with defensive attributes.” Zoupai.com wealth public product operations officer Zeng Fangfang analyzed that the logic is mainly based on the following points: “First, risk aversion and allocation demand are rising. In an environment of increasing global uncertainty and declining interest rates, high-dividend assets’ ‘bond-like’ qualities and cost-effectiveness are becoming more attractive to insurance funds, pensions, and other long-term capital. Second, the potential for incremental funds is huge. With many bank deposits maturing and institutional investors like insurance funds needing to allocate large amounts of capital, these ETFs align well with their long-term stability needs. Third, valuation advantages. Defensive sectors are currently undervalued historically, and if market volatility increases or growth stocks’ valuations remain high, it will attract various funds, including those that missed earlier opportunities, to flow back.”

Zeng Fangfang believes that the current rationale for allocating into bank ETFs is based on the sector’s low valuation, ongoing policy support, and the backdrop of long-term capital entering the market. The fundamentals of the banking industry are improving, and the sector not only offers high defensive value but also has the potential for valuation recovery amid a moderate economic recovery.

Feng Chengcheng added that the prolonged US-Iran conflict has exceeded expectations, leading to a decline in market risk appetite and prompting investors to seek more certain assets. In this context, risk-resistant assets like banks—characterized by earnings recovery and high dividends—are likely to become attractive allocation options.

Reporter: Xia Yuechao

Text Editor: Chen Sai