On September 10th, the Chinese A-share market showed signs of weakness with choppy trading, as nearly 4,500 stocks declined. However, capital poured into the banking sector, resulting in all 42 listed banks closing in positive territory. Notably, Bank of Ningbo and Bank of Nanjing each saw gains exceeding 3%, while Bank of Jiangsu, Bank of Nanjing, Bank of Chengdu, Bank of Hangzhou, and China CITIC Bank all set new historical highs during intraday trading. This surge propelled the Bank ETF Huabao (512800) close to its yearly peak, with its target index climbing 1.52% by the close of trading.

Since the beginning of September, persistent market volatility has rekindled investor interest in the banking sector, which is renowned for its low valuations and high dividend yields. Data reveals that eight banking stocks have already hit record highs this month. The robust performance is underpinned by solid fundamentals, which are providing a strong foundation for valuation recovery. In the first half of the year, the 42 listed banks collectively generated 3.14 trillion yuan in revenue, a year-on-year increase of 7.42%, with net profits attributable to shareholders reaching 1.13 trillion yuan, up nearly 3%. The industry's overall net interest margin saw its first rise in four years, with nearly half of the banks experiencing a bottoming-out and recovery in their margins.

Feng Chencheng, the fund manager for the Bank ETF Huabao (512800), highlighted that banking stocks have initiated a new upward trend around the release of their interim reports. The reports indicate stabilizing interest margins, rising revenues, and stable asset quality. From a long-term perspective, the banking sector is in a phase of earnings recovery. The recent rebalancing of market styles and institutional portfolios is accelerating the pricing recovery of bank valuations.

Where to begin with the investment logic? On one hand, the sector's valuation remains relatively low, sitting below its historical median. All 42 listed banks are currently trading below their book value. Combined with ongoing substantial dividend payouts, this positions the sector with prominent "bond-like" allocation value. This appeal was magnified as the state-owned major banks collectively upgraded their interim dividend policies for 2026. They uniformly raised their payout ratios from 30% to 31%, with planned interim dividends totaling approximately 220.988 billion yuan. This represents an increase of 16.332 billion yuan, or 7.98% year-on-year, marking the largest interim dividend in history.

Feng Chencheng further suggested that against the backdrop of declining long-term domestic bond yields and an "asset shortage" for long-term liability funds, the dividend yield, medium-term earnings growth rate, and absolute valuation of banks offer compelling reasons for allocation-driven capital to participate. He advises focusing on the market momentum driven by the sector's underweight positioning and its long-term allocation value.

The Bank ETF Huabao (512800) passively tracks the CSI Banking Index. Its constituent stocks encompass all 42 A-share listed banks. The top ten heavyweight stocks include major market leaders such as China Merchants Bank, Agricultural Bank of China, and Bank of Communications. The index also includes growth-oriented joint-stock, city, and rural commercial banks like Industrial Bank, Bank of Jiangsu, and Shanghai Pudong Development Bank. This makes the ETF an efficient tool for investors seeking to track the overall performance of the banking sector. Off-market investors can also access this strategy through the feeder funds (Class A: 240019; Class C: 006697).

Data sources include the Shanghai and Shenzhen stock exchanges. Regarding ETF fees, when subscribing or redeeming fund shares, the agent may charge a commission of up to 0.5%, which includes fees charged by the stock exchange and registration institutions. For the feeder funds, the subscription fee for Class A is 1,000 yuan per transaction for amounts of 2 million yuan or more, 0.6% for amounts between 1 million and 2 million yuan, and 1% for amounts under 1 million yuan. The redemption fee for Class A is 1.5% for holding periods of less than 7 days, 0.5% for 7 to 180 days, 0.25% for 180 days to 1 year, and 0% for holding periods of 1 year or more. No sales service fee is charged for Class A. Class C shares have no subscription fee, with a redemption fee of 1.5% for holdings less than 7 days, 0.5% for 7 to 30 days, and 0% for periods exceeding 30 days. The sales service fee for Class C is 0.2%.

Risk disclaimer: The Bank ETF Huabao (512800) passively tracks the CSI Banking Index, which has a base date of December 31, 2004, and was published on July 15, 2013. The CSI Banking Index has seen the following full-year changes over the past five years: 6.79% in 2025, 34.71% in 2024, -7.27% in 2023, -8.78% in 2022, and -4.41% in 2021. Its volatility rates for the same periods are: 14.03%, 19.34%, 13.41%, 18.56%, and 18.63%, respectively. The index constituents are adjusted according to its methodology, and past performance does not guarantee future results. The index constituents mentioned are for illustrative purposes only and do not constitute investment advice for individual stocks, nor do they represent the holdings or trading activities of any fund managed by the fund manager. The fund manager assesses this fund's risk level as R3-Medium Risk, suitable for balanced (C3) and above investors. Any information in this article is for reference only, and investors are solely responsible for their own investment decisions. Furthermore, any views, analyses, or forecasts herein do not constitute investment advice and are not liable for any direct or indirect losses arising from the use of this content. Fund investment involves risk, and past performance does not indicate future returns.