Why do global bank stocks keep hitting new highs?

Author: Xu Wei, Source: Shanghai Securities Journal

Recently, A-share bank stocks have surged strongly, reaching new highs and attracting the attention of investors. On July 10, the stock prices of the four major banks: Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank all hit historical highs, helping the Shanghai Composite Index return to 3500 points. The strong rise of bank stocks has not only been remarkable in the A-share market but is also evident globally. What factors are driving global bank stocks to soar?

According to statistics from Industrial Securities, from January 1, 2024, to July 8, 2025, the banking sector indices in the global market, the United States, Europe, Japan, and China have increased significantly by 52%, 49%, 65%, 53%, and 59%, respectively, all approaching or exceeding new highs since 2010, and have all outperformed the overall market index.

Taking the United States as an example, the KBW Bank index, which tracks the overall performance of U.S. bank stocks, has risen by 49% since the beginning of 2024, while the S&P 500 index has increased by 31% during the same period.

In the A-share market, the performance of bank stocks is also remarkable. Since the beginning of 2024, the CSI Bank Index has risen by 59%, while the Shanghai-Shenzhen 300 Index has increased by 17% during the same period.

The common changes in the global macro environment are an important driving force behind this phenomenon. Zhang Qiyao, chief strategy analyst at Industrial Securities, believes that as the global economy enters a low-growth era, the increased uncertainty of policies and geopolitics has led banks to be reassessed as "certainty assets" with stable profits and sustainable dividends. In addition, since 2022, the United States, Europe, and Japan have all entered a rate-hiking cycle, combined with special business models and forms of shareholder returns, overseas banks exhibit both high shareholder returns and growth potential.

In specific markets, the performance of bank stocks varies in characteristics. US bank stocks show notable features of stable dividends, high buybacks, and high growth. Over the past three years, the dividend payout ratios of major US banks have remained stable, all staying above 20%, with some banks like Morgan Stanley maintaining ratios above 40%. In addition to cash dividends, buybacks are also a common method of shareholder returns for US bank stocks, with some banks' buyback amounts in the past year even exceeding their cash dividends. European banks primarily adopt cash dividend models for shareholder returns, with a general significant increase in dividend payout ratios in 2024 and a strong willingness to distribute dividends. Driven by bond and currency trading as well as investment banking activities, some European banks, such as Deutsche Bank, have shown certain growth potential. After ending the era of negative interest rates, Japan's interest rate hikes have led to an expansion of bank interest margins. Since 2024, the performance of major banks has generally achieved high growth, and major bank stocks have also increased their dividend payout ratios, further enhancing shareholder returns.

Returning to the A-share market, despite challenges such as narrowing net interest margins, bank stocks are still showing strong upward momentum. In terms of year-to-date gains, several banks including Shanghai Pudong Development Bank, Qingdao Bank, Xiamen Bank, and Industrial Bank have seen increases of over 36%.

So, why is an endless stream of funds continuously flowing into the banking sector? "The operating model of our banking industry has gradually shifted from the past 'de-financialization, marketization, breaking the rigid payment' 'pro-cyclical' model to a new model with characteristics of 'weak cyclicality,'" said Dai Zhifeng, director of the Zhongtai Securities Research Institute and banking analyst. He pointed out that bank stocks are showing 'weak cyclical' characteristics in both fundamental and investment aspects. He believes that the decline in bank interest margins is expected to be slower than that of risk-free interest rates, and the weak cycle of asset quality, under the backdrop of declining risk-free interest rates, continues to make bank stock dividends attractive.

"Bank stocks are currently still in a trend of value reassessment." Looking ahead to the second half of the year, Changcheng Securities banking analyst Ma Xiangyun believes that the current bank stock market essentially reflects a deviation in expectations regarding the stability of the fundamentals. In recent years, the profitability resilience of banks has consistently exceeded expectations, mainly due to regulatory policies providing a safety net, the establishment of significant risk bottom lines in areas such as urban investment, real estate, and capital. "The stability of the fundamentals is the core foundation for the reassessment of dividend value and continued institutional accumulation. The net interest margin is currently bottoming out in 2025, asset quality is stable, and regional banks' performance growth is leading."