Not just in China, global bank stocks are hitting new highs

Recently, the A-share banking sector has repeatedly reached new highs, attracting investor attention. However, we found that this is not a phenomenon unique to A-shares; global bank stocks are also hitting new highs.

Since the beginning of 2024, global/U.S./European/Japanese/Chinese/Hong Kong banking indices have risen by 52%/49%/65%/53%/59%/88%, currently approaching or exceeding new highs since 2010, and outperforming the major indices.

The underlying reason for this phenomenon is primarily the commonality of the global macro environment. As the global economy enters a low-growth era, with increasing policy and geopolitical uncertainties, banks, as stable profit and sustainable dividend "certainty assets," have undergone a value reassessment.

In addition, since 2022, major countries around the world have entered a rate hike cycle, combined with special business models and shareholder return forms, overseas banks have both high shareholder returns and growth potential:

1) Monetary Policy

Since 2022, the U.S., Europe, and Japan have all entered a rate hike cycle, and the high-interest-rate environment has driven an increase in banks' interest margin income and profit growth.

2) Business Model

Overseas banks have a more diversified business model. In addition to traditional deposit and loan businesses, non-interest income from investment banking, asset management, and financial market trading is a major support for profit growth. For example, large banks like Morgan Stanley and Goldman Sachs have non-interest income accounting for over 85%.

3) Shareholder Return Methods

In addition to cash dividends, banks in the U.S., Japan, and some parts of Europe also tend to enhance shareholder returns through buybacks.

Looking at it by country:

United States: Stable Dividends + High Buybacks + High Growth

• Stable Dividends: Over the past three years, the dividend payout ratio of major U.S. banks has remained stable, all above 20%, with some banks like Morgan Stanley, PNC Financial Services, and U.S. Bancorp maintaining above 40%.
• High Buybacks: In addition to cash dividends, buybacks are also a favored method of shareholder return for U.S. bank stocks, with some banks having buyback amounts exceeding cash dividends in the past year, including JPMorgan, Bank of America, Goldman Sachs, and PNC Financial Services
• High Growth: In recent years, the overall U.S. economy has improved, leading to increased demand for loans from consumers and businesses, which has boosted interest income; at the same time, the active capital market has correspondingly increased banks' non-interest income from investment banking and wealth management businesses. Since 2024, major U.S. bank stocks have generally seen high profit growth, and ROE has also remained at a high level, demonstrating growth potential.

Europe: Cash Dividends + Growth Potential

• Cash Dividends: European banks mainly adopt a cash dividend model for shareholder returns, and in 2024, they have generally significantly increased their dividend payout ratios, showing a strong willingness to distribute dividends.
• Growth Potential: Driven by bond and currency trading, investment banking, and other businesses, some European banks have shown certain growth potential, such as Deutsche Bank, NATWEST Bank, and Barclays Bank.

Japan: Profit Recovery + Dividend Increase

• Profit Recovery: Interest rate hikes in Japan have helped banks expand their interest margins, and since 2024, major banks have generally seen high profit growth.
• Dividend Increase: After ending the negative interest rate era, major Japanese banks have also increased their dividend payout ratios, enhancing shareholder returns.

China (Hong Kong): Low Valuation + High Dividend + Stable Dividends

• Low Valuation: Currently, most Chinese banks' assets are in a state of being below book value, but their ROE levels are comparable to those of major global banks.
• High Dividend: The current dividend yield of major banks is around 5%, which is attractive compared to most global banks, especially considering China's current low interest rate environment.
• Stable Dividends: Chinese bank stocks exhibit stable dividend characteristics compared to other global banks, with major mainland banks maintaining a dividend payout ratio of around 30% over the past three years, while Bank of China Hong Kong and Hang Seng Bank can stabilize above 50%, enhancing the predictability and certainty of shareholder returns.

Finally, from the perspective of valuation comparisons among major global bank leaders, the current A-shares/H-shares valuation still holds attractiveness under the PB-ROE framework.

Author of this article: Zhang Qiyao Team, Source: Yao Wang Hou Shi, Original Title: "[Xingzheng Strategy Zhang Qiyao Team] Global Bank Stocks Are Hitting New Highs"

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