Hangzhou Bank (600926.SH) announced on the evening of August 20th that China Life, a shareholder with a stake of 1.86%, intends to sell all of its holdings. This "clearing sale" reduction is seen by the market as a significant signal of a change in the attitude of insurance funds towards bank stocks. By the close on the 21st, the banking sector declined, with over 80% of individual stocks falling. Hangzhou Bank led the decline with a nearly 5% drop during the session, closing at 13 yuan per share, down 3.92%.

Industry insiders believe that the change in capital attitude reflects the accumulation of risks in bank stocks during their rapid rise, with the cost-performance ratio gradually decreasing, and there may be further adjustments to positions in the future.

Banking stocks hit the "brakes"

On the 21st, the banking sector experienced a "braking" trend, halting a four-day consecutive rise. By the close, the CSI Banking Index (399986.SZ) fell by 0.73%. Among the 42 listed bank stocks, 35 individual stocks declined, 4 were flat, and only 3 slightly rose.

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Among the declining stocks, Hangzhou Bank led the fall with a 3.92% drop, with the stock price reported at 13 yuan, and it fell nearly 5% at one point during the session. Chengdu Bank and Rui Feng Bank also closed more than 2% down, with most of the leading decliners being city and rural commercial banks. The largest decline among state-owned banks was Industrial and Commercial Bank of China, which closed down 1.41%. The decline in shareholding banks was relatively shallow in this round, with China Merchants Bank experiencing the largest drop of 0.72%.

The "braking" trend in bank stocks today is related to an announcement last night. On the evening of the 21st, Hangzhou Bank announced that China Life, a shareholder with a 1.86% stake, intends to clear its holdings by reducing 110 million shares. "If insurance institutions reduce their holdings of this stock in a relatively short period, it will inevitably have a certain impact on the stability of the stock price," a banking industry analyst told reporters. The reduction of bank stocks by insurance institutions may be to release profits, but the "clearing sale" retreat does not rule out the possibility of "locking in profits."

First Financial Daily reporters noticed that even with today's decline, Hangzhou Bank's cumulative increase this year has approached 30%, offsetting last year's full-year decline. The stock price has risen from 9.85 yuan to 13 yuan, which is the best performance in the past three years. The performance of the entire banking sector's stocks is similar to that of Hangzhou Bank, with nearly half of the individual stocks reaching new highs in the year. For example, Industrial and Commercial Bank of China recently reached a high of 6.4 yuan in the past six years, and Bank of Communications reached a stock price of 7.99 yuan, which was last seen in 2015.

The aforementioned analyst stated that the significant rise in bank stocks this year means that for most shareholders, the floating profit level of the held bank stocks is already at a high level. Due to the need for capital arrangement and asset allocation, insurance funds are reducing their holdings. Some insurance asset management personnel also indicated that the current stock prices of some banks are relatively high, and the valuations reflect the profit situation for the next few years. According to absolute returns, the goals have been achieved, and it is normal to lock in profits and secure gains as an investment arrangement.

In the context of the strong rise in bank stocks this year, there was a slight correction in June and July. "This time it is different," a public fund manager in Shanghai told reporters, stating that previous corrections in bank stocks were due to market judgments on long-term bond trends and the impact of interest spread data, but there was no case of major shareholders, especially insurance funds, making "clearing sale" reductions. To some extent, this means that the bank stock trend may have reached a "dead end" stage, and choosing to reduce holdings at this time may be a better option.

Looking at the recently disclosed mid-year report data of bank stocks, the industry risks have not been cleared, and the interest spread of most banks continues to narrow. (For details, see the report "Mid-term Exam of 10 Listed Banks: Revenue and Net Profit Stabilize, but Interest Spread Pressure Remains") "Under the influence of multiple factors such as narrowing interest spreads, weak credit demand, and the low-level turning point of new non-performing retail consumer loans, the revenue of some small and medium-sized banks may face certain pressure and requires further attention," said Deng Kaicheng, fund manager of Minsheng JiaYin Fund.Xu Peng, a researcher at the China Macroeconomic Research Institute, also believes that insurance funds may think that the current increase in the banking sector is too high, not cost-effective, and carries certain risks. The original high dividend strategy of allocating bank stocks has become ineffective, so they reduce their holdings in bank shares and turn to allocate better assets.

Is the insurance fund sending a "retreat" signal?

Bank stocks have always been characterized by stable stock prices and high dividend rates, making them a stable source of investment income and always favored by insurance funds. In fact, it is not uncommon for insurance funds to leave the market. Once an institution significantly reduces its holdings, other insurance funds may follow suit, creating a "domino effect."

For example, in 2021, bank stocks experienced a significant increase in the first half of the year, with a cumulative increase of more than 6%. As the year approached the middle, insurance funds initiated a wave of bank stock reductions. According to incomplete statistics from reporters, five life insurance companies, including China Life, Taikang Life, Harmony Health, Huaxia Insurance, and Minsheng Life, successively reduced their holdings in multiple bank stocks such as Postal Savings Bank of China, Hangzhou Bank, China Construction Bank, China Zheshang Bank, China Everbright Bank, and Agricultural Bank H shares. Against the backdrop of the concentrated departure of insurance funds, the banking sector's market trend took a turn in the second half of the year, giving up all the gains from the first half of the year, and ending the year with a decline.

From past experience, when insurance funds increase their holdings in bank stocks, they usually value their low valuation and high dividends. Once they have obtained sufficient dividend income, they will choose to reduce their holdings in high dividend bank stocks and turn to allocate other assets, which is seen by the industry as optimizing the high dividend strategy.

"Most of the insurance fund's reduction is a normal investment operation of 'buying low and selling high.'" In the view of industry insiders, the appearance of a withdrawal signal from insurance funds may be due to the overall pressure on the insurance industry this year, so they choose to temporarily take profits and preserve their strength.

Official data shows that by the end of the second quarter, the total premium income of insurance companies increased by 10.65% year-on-year, and the balance of insurance funds used increased by 9.62% from the beginning of the year. At the same time, the combined scale of stocks and funds held by property insurance and life insurance increased by 136.9 billion and 169.3 billion yuan respectively from the beginning of the year. Among the heavy positions of insurance funds, the holding ratio of bank stocks is as high as 48.3%, an increase of 0.8 percentage points from the beginning of the year.

A public fund analyst in East China also told reporters that from the overall position, bank stocks are the industry with the highest holding market value for insurance funds, and appropriate reduction is beneficial for insurance funds to balance diversified asset allocation.

The First Financial reporter noticed that although some signals of withdrawing from bank stocks have been released, insurance funds still have a high interest in individual stocks with high dividends, high dividends, and stable stock prices. This year, leading stocks in the new energy, environmental protection, and infrastructure industries have frequently received insurance funds' support, and there are at least seven stocks that have been increased. Recently, Datang New Energy's H shares were the latest to receive a new support from Great Wall Life, with an increase of 5 million shares.