On July 17th, all 42 A-share listed banks saw their share prices rise during the trading session, with the CSI Bank Index briefly gaining over 1%. By the morning close, 40 banks were up, two were flat, and seven had surged more than 2%. Notably, the stock price increases for city commercial banks and rural commercial banks were significantly larger than those for joint-stock banks.

This recent uptick in bank stocks coincides with the ongoing distribution of dividends, a shift of funds towards safe-haven assets, and historically low valuations. These factors together raise the question of whether a sustained rally for the banking sector is beginning.

Recently, intensified market rotation and a strong risk-off sentiment have driven capital towards high-dividend assets, leading bank stocks to climb against the broader market trend. On July 17th, all 42 A-share listed banks showed gains of varying degrees. By the morning close, Qingdao Bank, China Construction Bank, Chongqing Rural Commercial Bank, Wuxi Bank, Bank of Lanzhou, Ruifeng Bank, and Zhangjiagang Bank had all risen by more than 2 percentage points, with Qingdao Bank leading at a 2.86% increase.

It is worth highlighting that bank stocks are currently in a phase of concentrated dividend payouts for the 2025 fiscal year. As of July 17th, 36 A-share listed banks have completed their dividend distributions, with a total payout amounting to 315.787 billion yuan. Among them, Industrial and Commercial Bank of China distributed the most, with a total dividend of 60.197 billion yuan for 2025.

Data from Wind shows that, with the exception of Zhengzhou Bank which did not pay a dividend, the other 41 A-share listed banks distributed approximately 636.4 billion yuan in total for 2025.

Bank stocks have experienced a sustained downtrend this year, with the CSI Bank Index falling about 7 percentage points year-to-date. However, it gained nearly 1 percentage point on this single day. Currently, the valuation of the A-share banking sector is at an extremely low historical level, with the vast majority of bank stocks trading below their net asset value per share, a situation known as "breaking net."

According to Wang Pengbo, Chief Analyst at Bocom Consulting, this collective rise in bank stocks is likely driven by a combination of capital flows and fundamentals.

"Firstly, there is a structural shift in market capital, with a clear trend of funds moving from previously high-volatility sectors to sectors with high dividends and low valuations. The price-to-book ratio of the banking sector is at a historical low, providing a natural margin of safety for allocation," Wang noted. "Secondly, there are signals of marginal improvement in industry fundamentals. Credit issuance remains stable, pressure from the generation of non-performing assets has eased somewhat, and the pace of net interest margin decline is gradually slowing."

Wang further pointed out that the upcoming semi-annual report disclosure period creates a window for performance speculation. The relatively small circulating share capital of city and rural commercial banks means price fluctuations are more pronounced for the same capital inflow compared to joint-stock banks. This, combined with share buyback actions by listed banks stabilizing market expectations, has collectively pushed the sector higher.

So, does this signal the return of a bull market for bank stocks?

"A single day of broad sector gains certainly does not signify the official return of a trend for bank stocks," Wang Pengbo analyzed. "The core driver of this rise is valuation repair and the demand for safe-haven capital allocation, representing a phased rebound within a bottoming range. Sustained strength in the medium to long term requires continuous validation from multiple core indicators, such as a stabilization and recovery in net interest margins, steady expansion in real economy financing demand, and sustained improvement in asset quality data."

Guosheng Securities stated that the current investment focus for the banking sector centers on the theme of valuation repair driven by a recovery in core revenue. The banking sector possesses strong certainty in profit recovery and high-dividend attributes, further highlighting its cost-effective, balanced configuration appeal. Guosheng Securities recommends focusing on high-quality regional city commercial banks with strong fundamental certainty and outstanding earnings growth elasticity, as well as state-owned and joint-stock banks with attractive dividend yields.

Additionally, major state-owned banks have demonstrated stable credit issuance, with strong resilience in net interest margins as corporate loan rates stabilize. Their revenue recovery in the first quarter was notable. In a low-interest-rate environment, the allocation value of their high-dividend attributes is further highlighted, making them a core choice for long-term capital's foundational holdings.

CITIC Securities pointed out that from an absolute return perspective, bank stocks, as stable equity assets with relatively high certainty of returns, are suitable for allocation by low-volatility, steady capital. From a relative return perspective, short-term performance is attributed to market style influences, while long-term performance is attributed to valuation and return-on-equity space from an industry comparison perspective. Overall, the most critical factor affecting banking sector investment in the next stage is the narrative change in the capital markets. This refers to the sustained preference on the capital supply side for high-yield financial assets, while on the asset side, returns on equity assets may exhibit structural characteristics over the long term. Bank stocks stand to benefit from this trend in the long run.