Bank stocks hit new highs again! What is the impact of public fund performance benchmark assessment on bank stock allocation?

On Wednesday, the banking sector of A-shares continued to gain momentum, reaching a new high since mid-July 2015. Agricultural Bank of China, Shanghai Bank, and China Everbright Bank all hit historical highs during the trading session. The large financial sector surged, driving the ChiNext Index and the Shanghai Composite Index to rise over 1% in the afternoon.

In terms of news, some analysts believe that the new regulations for public funds will significantly promote the valuation recovery of A-share bank stocks. In a recent report on May 14, Industrial Bank Securities pointed out that the new regulations for public funds guide asset allocation towards the CSI 300. Due to the significant "allocation gap" with performance benchmarks, public funds will have to increase their weighting in bank stocks.

According to Industrial Bank data, focusing on performance benchmarks including the CSI 300 Index, as of the end of 2024, the proportion of bank holdings in actively managed funds is 3.81%, while the weight of the banking sector in the CSI 300 Index is as high as 13.67%, with a deviation of nearly 10 percentage points.

Huaxi Securities also expressed a similar view, stating that according to the latest data (Q1 2025), the allocation ratio of public funds in the banking sector is approximately 3.49%, which is underweight by 9.99 percentage points compared to the CSI 300 Index and underweight by 6.99 percentage points compared to the CSI 800 Index. Additionally, Guojin Securities believes that the new regulations for public funds are also expected to drive capital flow towards the brokerage sector.

From the perspective of individual stock allocation, under the trend of increasing fund allocations, banks that were previously underweighted are expected to benefit more. Industrial Bank data shows that the underweight ratio for stocks such as China Merchants Bank, Industrial Bank, ICBC, Bank of Communications, and SPD Bank is larger.

New Regulations for Public Funds: Strengthening the Constraints of Performance Benchmarks

According to the research report from Industrial Bank Securities, the "Action Plan for Promoting the High-Quality Development of Public Funds" released by the China Securities Regulatory Commission on May 7 will change the operating mechanism of the public fund industry. The core of this plan is to establish an assessment system centered on fund investment returns, significantly enhancing the constraints of performance benchmarks.

The most critical changes include:

• Performance Benchmark Constraints: For fund managers' assessments, the performance indicators of fund products must account for no less than 80%. For products with performance below the performance benchmark by more than 10 percentage points over three years, their performance compensation must significantly decrease;

• Style Drift Supervision: Funds that deviate from the benchmark by more than 20% for a long time (over 1 year) will be closely monitored;

• Industry Allocation Disclosure: Quarterly reports must detail the differences in industry allocation compared to the benchmark index and the adjustment plans;

Therefore, Industrial Securities expects that public funds will significantly emphasize the assessment of fund performance and deviations from benchmarks in the future.

Bank stocks face underweight, and active funds are expected to increase holdings subsequently

Industrial Securities focuses on active equity funds with performance benchmarks including the CSI 300 Index. From an industry allocation perspective,

As of the end of 2024, the proportion of bank holdings in active funds is 3.81%, while the weight of the banking sector in the CSI 300 Index is as high as 13.67%, with a deviation of nearly 10 percentage points.

From the perspective of individual stock allocation, research data from Industrial Securities shows:

China Merchants Bank, Industrial Bank, ICBC, Bank of Communications, and SPD Bank are the bank stocks with the largest underweight in the CSI 300 Index. The holding deviation of China Merchants Bank reaches 1.9%; the holding deviation of Industrial Bank is 1.5%.

Under the new public fund assessment mechanism, it is expected that active funds will increase bank holdings, narrowing the deviation from performance benchmarks, with deeply underweighted bank stocks likely to receive greater inflows of allocation funds, providing the largest space for valuation recovery