On July 7th, the banking sector defied the broader market trend to post strong gains. Data shows that by the market close, the Shenwan primary bank index had risen 0.20%, leading all industry sectors, with a net inflow of 655 million yuan from main funds. Within the sector, a total of 12 individual stocks advanced. China Construction Bank Corp (SHSE: 601939) rose 2.59%, Bank of China Ltd (SHSE: 601988) gained 2.48%, and Industrial and Commercial Bank of China Ltd (SHSE: 601398) increased by 1.97%.

Regarding the sector's recent performance, an analyst from Jinbailin Consulting indicated that the driving factors come from two levels. In terms of fund structure, momentum capital is reducing positions in the previously high-flying hard tech stocks and shifting towards high-quality, undervalued stocks with high dividend yields. Fundamentally, with the half-year report disclosure window approaching, the performance of bank stocks whose net interest margins have shown some recovery in the first half of 2026 may exceed expectations, particularly some city commercial banks, thereby attracting the return of momentum capital.

A researcher from Paipaiwang Wealth further elaborated that the banking sector is expected to see dual improvements in fundamentals and capital flows in the second half of the year, leading to a re-rating from a "high-dividend defensive asset" to a "high-certainty equity asset." Current sector valuations are at a historical bottom, providing ample safety margin. As high-interest deposits issued earlier mature, this is expected to promote a gentle stabilization of net interest margins. The performance of listed banks in 2026 is anticipated to gradually find a bottom and stabilize. If the July and August interim reports confirm revenue stabilization, stable asset quality, and sustainable dividends, it will become a key catalyst for the sector's upward movement. For allocation, it is suggested to prioritize high-dividend, state-owned commercial banks and leading city commercial banks with excellent asset quality.

Recent Developments

On the news front, since entering July, A-share listed banks have been intensively releasing announcements regarding dividend distribution implementation. As of July 7th, 12 banks including Bank of China Ltd (SHSE: 601988), Bank of Communications Co Ltd (SHSE: 601328), Bank of Xi'an Co Ltd (SHSE: 600928), Bank of Beijing Co Ltd (SHSE: 601169), Bank of Jiangsu Co Ltd (SHSE: 600919), China Merchants Bank Co Ltd (SHSE: 600036), Qilu Bank Co Ltd (SHSE: 601665), Qingdao Rural Commercial Bank Corp (SHSE: 002958), Bank of Chongqing Co Ltd (SHSE: 601963), Postal Savings Bank of China Co Ltd (SHSE: 601658), Bank of Chengdu Co Ltd (SHSE: 601838), and China Construction Bank Corp (SHSE: 601939) have disclosed their dividend distribution implementation announcements.

Institutional Sentiment

Regarding institutional ratings, data shows that as of July 7th, among the 41 individual stocks in the banking sector covered by institutional ratings, more than half have buy potential. 22 stocks, including Bank of Ningbo Co Ltd (SZSE: 002142) and China Merchants Bank Co Ltd (SHSE: 600036), received "Buy-" or "Buy" ratings. The remaining 19, such as Ping An Bank Co Ltd (SZSE: 000001) and Shanghai Pudong Development Bank Co Ltd (SHSE: 600000), received "Add+" or "Add" ratings, indicating a generally optimistic institutional outlook for the sector's future.

Multiple securities firms hold a positive view on the subsequent trajectory of the banking sector. GF Securities pointed out that as fiscal policy gains traction and terminal interest rates stabilize, sector investment opportunities will gradually emerge after the disclosure of half-year reports, with the fourth quarter expected to offer potential for absolute returns. The investment logic is shifting from "valuation expansion" to "earnings-driven," suggesting a focus on banks with improving core business, fully exposed non-performing assets, and substantial bond floating profits. Everbright Securities believes that significant negative capital flow disturbances are nearing an end and will likely be digested around the time of the interim reports. With government bond issuance accelerating to drive credit demand, coupled with stabilizing net interest margins and strengthened provisions, the operational health and asset safety cushion of banks will both improve, benefiting long-term valuation recovery.