State-owned major banks' H-shares hit a new high, who is buying?

◎ Reporter Xu Xiaoxiao

Since the beginning of this year, the share prices of major banks such as China Construction Bank, Industrial and Commercial Bank of China, and Bank of China’s H-shares have performed strongly, not only outperforming the market but also collectively reaching new highs in mid-April. In comparison, their A-share prices have recently underperformed relative to H-shares. As of the close on April 17, the AH premium index stood at 118.38 points. Additionally, the discount of state-owned bank H-shares is usually greater than the market average, and based on this, the general discount to A-shares is estimated to be about 15% to 25%.

State-owned bank H-shares offer better “cost performance”

According to Choice data: The A-share banking sector has recently shown a volatile trend, with valuations at historic lows, but its high dividend attribute attracts capital attention; H-share banking stocks, benefiting from high dividends and resilient profits, have performed relatively strongly, with many banks hitting new highs for the year. As of the close on April 17, the dividend yields of the six major banks’ H-shares generally ranged from 4% to 5%, while their A-shares hovered at dividend yields of 3% to 4%.

This also means that H-shares of the six major banks are more cost-effective. In fact, since last year, southbound funds representing mainland capital and funds with state-owned background have been continuously “buying up.” Take Postal Savings Bank as an example: long-term mainland capital such as Ping An Life has repeatedly increased its holdings of Postal Savings Bank H-shares, triggering three consecutive shareholding disclosures, demonstrating a firm stance of continuous “buying” and long-term allocation.

Meanwhile, southbound funds are also accelerating inflows. Data shows that during trading days in mid-April, China Bank H-shares experienced a single-day net inflow of 191 million Hong Kong dollars from main funds. In a low-interest-rate environment, the relatively high dividend yield of state-owned bank H-shares is highly attractive to insurance funds and wealth management funds seeking absolute returns.

This phenomenon is also related to the current high level of AH premium rates. For state-owned banks, H-shares generally trade at a 15% to 25% discount compared to A-shares. Under the same equity and dividend conditions, H-shares are not only priced lower but also offer more attractive dividend yields after conversion.

However, some foreign institutions have already started to reduce holdings at high levels. Recently, Hong Kong Stock Exchange disclosure information showed that global asset management giant BlackRock reduced its holdings in Industrial and Commercial Bank of China and Bank of China H-shares on April 9, with its stake in ICBC decreasing from 5.01% to 4.96%.

An analyst in the banking industry told Shanghai Securities Journal that, from the perspective of asset pricing and microstructure of trading, taking profits from targets with significant recent gains and high valuations, while increasing positions in homogeneous assets with relatively lagging valuations and mean reversion potential, is a typical sector rotation and inter-temporal arbitrage strategy.

He believes that foreign institutional investors currently do not have a systematic bearish view on the fundamentals of Chinese state-owned banks or are undertaking large-scale capital withdrawals. Instead, they are measuring micro valuation differences and executing risk-neutral strategies under strict risk constraints to optimize the marginal risk-return ratio of their holdings.

Market outlook may continue

“Institutional funds’ current tilt toward H-shares of state-owned banks is essentially the optimal solution for different types of capital based on their own constraints. Long-term allocation funds value the discount for higher dividend compensation,” said Dong Yaohui, Deputy Director of the Shenzhen Financial Stability Development Research Institute, in an interview with Shanghai Securities Journal.

But this phenomenon does not mean a lack of investment value in the A-share market. Dong Yaohui stated that, on the contrary, A-shares remain the core asset pool within the domestic basic financial system, supported by strong liquidity, lower external sensitivity, and direct policy dividend benefits. Currently, the two markets are in a “complementary and symbiotic state: A-shares provide pricing anchors and liquidity support, while H-shares offer yield flexibility and hedging efficiency.”

From a trading logic perspective, this is also consistent. A report from Changjiang Securities suggests that, influenced by market style, A-shares of state-owned banks have become more prominent as defensive assets in recent years. Active trading by funds influenced by risk appetite and index fund flows significantly impacts stock prices; meanwhile, H-shares, with lower valuations and higher dividend yields, are primarily priced by southbound funds seeking dividends and absolute returns, such as insurance companies, leading to more stable trends, with fundamentals also affecting stock prices.

As the second-quarter dividend period approaches, southbound funds typically increase their holdings of H-shares of state-owned banks, with the Stock Connect holdings ratio usually entering an upward cycle that extends into the third quarter. However, compared to the substantial increase in holdings in 2024 and the first half of 2025, the current allocation intensity has weakened and the timing is relatively later. Changjiang Securities believes this is mainly because, since 2025, the yield on government bonds has not further declined unilaterally, and with the rebound in the equity market, the urgency for institutional funds to allocate to high-dividend state-owned bank H-shares has slowed in the short term.

In the medium to long term, Changjiang Securities states that persistent asset scarcity pressures will continue to push down the dividend yields of H-shares of state-owned banks. Looking ahead, the overall market for large bank H-shares is not over; upcoming quarterly reports and ongoing special sovereign debt capital replenishment plans are expected to serve as dual catalysts for continued stock price appreciation.

(Edited by: Qian Xiaorui)

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