Overtaking Industrial and Commercial Bank to Become New "Universe Bank"

On September 4th, A-share markets experienced a sudden cooling. One of the day's major highlights was the sharp decline of previously active technology stocks, while banking stocks regained momentum.

During trading, Agricultural Bank of China (601398.SH, 01398.HK) surpassed Industrial and Commercial Bank of China (601288.SH, 01288.HK) in total market capitalization for the first time, ascending to become the new "universe bank." This marks another record for Agricultural Bank, achieved less than a month after surpassing ICBC's A-share market cap in early August.

Market-wide, major indices closed lower: the Shanghai Composite fell 1.25% to 3,765.88 points; the STAR 50 Index dropped 6.08% to 1,226.98 points; the Shenzhen Component Index declined 2.83% to 12,118.7 points; and the ChiNext Index fell 4.25% to 2,776.25 points.

Against this backdrop, Agricultural Bank surged 5.17% throughout the day, with its total market capitalization reaching 2.55 trillion yuan, exceeding ICBC by over 66 billion yuan, officially claiming the market cap crown. Year-to-date, Agricultural Bank's stock price has continued climbing with a 47% gain, leading among listed banks. Its total market cap has soared by over 720 billion yuan, equivalent to "adding" one China Shenhua Energy Company Limited.

Agricultural Bank's Market Cap Surpasses ICBC

With indices declining across the board on Thursday, 2,990 stocks fell while 2,297 gained market-wide. Sector-wise, technology stocks saw broad declines, with the CPO (Co-Packaged Optics) index falling over 10%. Semiconductor, minor metals, and defense sectors also sold off simultaneously. Commercial retail, beauty care, and banking sectors led the 31 Shenwan first-tier industries with gains of 1.63%, 1.19%, and 0.79% respectively.

Under the "seesaw effect," the banking sector continued strengthening in the afternoon. After Agricultural Bank's morning rally that achieved market cap leadership, it continued gaining strength in the afternoon with a sharp late-session rally, briefly touching a new high of 7.55 yuan before closing up 5.17% at 7.52 yuan. Among other major banks, Postal Savings Bank rose 2.9%, while ICBC and Bank of China gained 1.34% and 1.26% respectively. At close, 24 banking stocks posted gains, with the sector's total market cap reaching approximately 14.64 trillion yuan.

The day's biggest highlight was Agricultural Bank's stock price rally against market trends, not only widening its A-share market cap lead over ICBC but also surpassing ICBC's total market cap for the first time, officially becoming the new "universe bank."

At close, Agricultural Bank's total market cap exceeded 2.55 trillion yuan, outpacing ICBC (2.49 trillion yuan) by 66.7 billion yuan. A-share market cap rankings now show the top five as: Agricultural Bank, ICBC, China Construction Bank, Kweichow Moutai, and China Mobile. At year-start, the top five were: ICBC, Kweichow Moutai, Agricultural Bank, China Mobile, and PetroChina.

In terms of market cap changes, Agricultural Bank's total market cap has grown approximately 721.9 billion yuan since year-start, ranking first among A-shares. This market cap increase equals one China Shenhua Energy Company Limited (738.6 billion yuan) or two PICC (353.9 billion yuan each).

In retrospect, despite some banking sector correction since July, performance diverged among major banks, with Agricultural Bank showing relatively stable stock performance and A-share gains exceeding 47% year-to-date. Among other state-owned banks, ICBC and Postal Savings Bank A-shares rose 13.54% and 18.03% respectively, while China Construction Bank and Bank of China gained 9.58% and 6.55% respectively. Bank of Communications fell 0.73%.

Besides Agricultural Bank and Postal Savings Bank, top-performing banking stocks year-to-date were mainly city commercial banks and joint-stock banks. Qingdao Bank (39.88%) and SPD Bank (37.88%) ranked second and third in gains. Over the same period, Huaxia Bank and Zhengzhou Bank fell over 2%.

However, significant differences exist in share structures among major banks, which has been a point of contention in previous A-share market cap comparisons. Latest Wind data shows state-owned banks' A-share proportions of total share capital from high to low are: Agricultural Bank (91%), Postal Savings Bank (83%), ICBC (76%), Bank of China (74%), Bank of Communications (60%), and China Construction Bank (8%). The six major banks' Hong Kong-listed share proportions of total capital from high to low are: China Construction Bank (92%), Bank of Communications (40%), Bank of China (26%), ICBC (24%), Postal Savings Bank (17%), and Agricultural Bank (9%).

Agricultural Bank and ICBC have total share capitals of approximately 350 billion and 356.4 billion shares respectively, with both currently having 100% of total shares in circulation.

In Hong Kong markets, Agricultural Bank also led in gains. Wind data shows year-to-date H-share price increases of 29.31% for Agricultural Bank, 27.01% for Postal Savings Bank, and 25.20% for China Construction Bank. ICBC, Bank of China, and Bank of Communications recorded H-share gains of 16.67%, 16.04%, and 12.57% respectively.

Understanding the Underlying Forces and Logic

In this banking stock rally, state-owned major banks have consistently been highlights. Given their large market capitalizations, the underlying capital forces have drawn attention, with speculation including insurance fund increases, mutual fund allocations, and household deposit migrations.

A senior investment professional indicates all these capital forces are involved. However, as banking stocks represent high dividend yield stocks that have historically been undervalued, allocation-oriented and trading-oriented funds have vastly different timing for such assets. This causes trading chips to concentrate in allocation portfolios when valuations are sufficiently low. When the prolonged bear market ends and rally begins, markets see many buyers but few sellers, creating value surge phenomena.

Recently, facing renewed technology stock momentum, banking stocks have experienced some correction. Combined with the sector's significant prior gains, discussions have increased about whether the banking rally has concluded. However, the aforementioned professional states that valuation is key to judging whether banking stocks are expensive, with short-term price movements having limited reference value.

From allocation forces perspective, insurance funds have been the most watched force this year, frequently "sweeping up" banking stocks. Taking Ping An Life as an example, the company has repeatedly increased holdings in China Merchants Bank, Agricultural Bank, Postal Savings Bank, and ICBC in Hong Kong markets this year, triggering multiple disclosure requirements. Currently, Ping An Life holds over 15% of H-shares in all four banks. Ping An Life's latest disclosure of Agricultural Bank H-share increase was on September 2nd.

From A-share valuations perspective, as of September 4th close, among 42 A-share listed banks, only China Merchants Bank had a price-to-book ratio above 1x, with Agricultural Bank and Chengdu Bank at 0.98x and 0.93x respectively ranking second and third. Regarding AH-share premiums, as Hong Kong stock prices rose, Agricultural Bank's AH premium increased from about 30% at year-start to 52%, and ICBC's AH premium rose slightly by 1 percentage point, while other dual-listed banking stocks saw varying degrees of AH premium declines.

The aforementioned professional believes Hong Kong banking stocks' attractiveness has indeed decreased but valuations remain reasonable. A-share banking stocks overall remain more expensive than Hong Kong counterparts, but the gap is narrowing, which may shift some institutional focus from Hong Kong to A-shares.

Regarding dividend yields, as of Thursday's close, the median dividend yield among 42 A-share listed banks remained above 4%. With interim report disclosures, multiple banks' mid-year dividend plans emerged, with all six state-owned major banks distributing 30% of first-half net profit attributable to parent company as cash dividends, totaling over 200 billion yuan in distributions.

Marginal improvements in banking fundamentals are also viewed as important support for continued rally. From interim reports, industry profit decline pressure has eased compared to the same period last year and showed improvement signals versus Q1. Main pressure remains from narrowing interest margins and risk releases in personal loans and real estate sectors.

CICC banking analyst Lin Yingqi believes that looking forward, with consumer and service loan subsidies and new fiscal tools like policy financial instruments landing, plus capital market activity boosting fee income recovery, banking operating indicators are expected to continue improving in the second half. However, asset quality depends on actual economic improvement, particularly residents' cash flow conditions and real estate market recovery pace.

"Recent banking sector stock price corrections have been notable. We believe this mainly stems from market style rotation, with high dividend assets losing attractiveness. However, Q2 performance reflects banking operational resilience, helping stabilize performance and dividend expectations," Lin stated in the report.

(Note: Total market cap calculation includes A-share closing price × A-share total + B-share closing price × B-share total × RMB exchange rate + H-share closing price × H-share total × RMB exchange rate + overseas-listed share closing price × overseas-listed share total × RMB exchange rate; A-share market cap calculation is A-share closing price × A-share total capital)