On July 28, while the A-share market opened low and fell throughout the day with major indices collectively declining, bank stocks performed remarkably well. The Wind banking index rose 1.51% for the full day, with 39 out of 42 bank stocks closing higher. The total market capitalization of the banking sector reached 14.6 trillion yuan, an increase of 229 billion yuan from the previous trading day, nearly returning to its level at the start of the year.

Wind data shows that since July, the total market cap of the banking sector has "recovered" by over 1.4 trillion yuan. As market risk appetite declined, funds flowed back into dividend value and defensive sectors, allowing bank valuations to recover.

ICBC (Industrial and Commercial Bank of China) is catching up to Cxmt Corporation. Following the frenzy sparked by Cxmt Corporation (688825.SH) on July 27, when its market cap surpassed several banking giants, the banking sector fought back on the 28th, with multiple bank stocks rising against the market trend during the session. China Construction Bank (CCB) (601939.SH) surged over 3% intraday, hitting a record high of 10.68 yuan per share and achieving a total market cap exceeding 2.1 trillion yuan. ICBC (601398.SH) closed up 3.1%, with its total market cap reaching 2.7 trillion yuan. The market cap gap between ICBC and Cxmt Corporation narrowed from 645.1 billion yuan the previous trading day to 441.2 billion yuan, shrinking by approximately 200 billion yuan in a single session. Agricultural Bank of China (ABC) (601288.SH) closed up 3.57%, posting the most significant gain, while Bank of Shanghai (601229.SH) and Bank of Chongqing (601963.SH) also followed suit.

Looking back at the first half of this year, the banking sector consistently weakened, with its total market cap once evaporating nearly 1.5 trillion yuan. The CITIC Bank stock index fell 10.8% from the start of the year, while the Wind All-A index rose 11.52% and the Science and Technology Innovation Composite Index increased by 54% over the same period. A research report from CITIC Securities suggested that the banking sector's continued adjustment was partly due to large-scale redemptions from broad-based ETFs like the CSI 300, and partly because of an extreme market style in the second quarter, where the banking sector weakened further under the "seesaw" effect of capital flows. Additionally, influenced by market conditions and style, the proportion of bank stocks held by funds decreased significantly. According to fund holding data at the end of the second quarter of 2026, the proportion of bank stocks held by active public funds had fallen to its lowest level since 2019. Northbound capital continued to see minor outflows, while only Southbound capital persistently favored large-cap Hong Kong-listed banks.

Entering July, the market logic quietly shifted. With the interim report disclosure period approaching and some hard-tech stocks experiencing their sharpest correction of the year, overall market risk appetite declined. Capital began to flow back into dividend value and defensive sectors. Against this backdrop, the banking sector, characterized by low valuations and high dividends, naturally became a "safe haven" for funds seeking certainty, thus initiating a valuation recovery rally.

Bank operations have passed their trough. Before the formal release of interim reports, some banks had already signaled their operational status. On the evening of July 20, Bank of Chongqing and Chongqing Rural Commercial Bank (CQRCB) (601077.SH) were the first to release their semi-annual performance forecasts for 2026, becoming the first listed banks on the A-share market to disclose their half-year operating data. The forecasts showed that in the first half of 2026, Bank of Chongqing achieved operating income of 8.486 billion yuan, a year-on-year increase of 10.8%; net profit attributable to the parent company was 3.518 billion yuan, up 10.28% year-on-year. CQRCB achieved operating income of 15.892 billion yuan, up 7.81% year-on-year; net profit attributable to the parent company was 8.168 billion yuan, up 6.09% year-on-year. Both regional commercial banks achieved positive growth in both revenue and net profit. On the same day, Shanghai Pudong Development Bank (SPDB) (600000.SH) also announced its main operating conditions for the first half of 2026. As of the end of the first half, SPDB's total loan balance was 5.868251 trillion yuan, an increase of 164.278 billion yuan from the end of the previous year, or 2.88%; the company's total deposit balance was 5.864101 trillion yuan, up 281.666 billion yuan from the end of the previous year, or 5.05%. Everbright Securities analyst Wang Yifeng believes that bank operations have passed their trough, with a definitive improvement expected in 2026. He predicts that interim reports will show year-on-year revenue growth in the high single digits, net profit attributable to the parent company will remain stable with an upward trend, and the full year outlook is positive. Benefiting from a stabilizing and bottoming-out net interest margin, bank revenue elasticity in 2026 is expected to recover significantly compared to the past three years. Net interest income is likely to move away from the trend of "increasing volume without increasing profit" and return to its pillar role.

Valuation logic may shift from PB to PE. Looking ahead, Dongfang Securities analyst Qu Jun maintains a relatively positive view on the banking sector's performance. Qu believes that since the third quarter, amidst the rebalancing of market risk appetite and capital style, a window for style rebalancing has opened. With the expectation of stable fundamentals in banking interim reports, which show definitive improvement compared to the past three years, coupled with high-dividend defensive characteristics, the sector is expected to maintain its current phase of valuation recovery. Guosheng Securities research report also suggests that the current core investment theme for the banking sector is the valuation recovery driven by the restorative growth of core revenue. The sector possesses strong certainty of earnings improvement and high-dividend attributes, further highlighting its attractive configuration for both offense and defense. However, Huachuang Securities analyst Lin Wanhui argues that the investment logic for bank stocks in 2026 will shift from pure dividend defense to a dual-driver of "dividends plus growth." On one hand, the characteristics of high dividends and low valuations remain the foundation of bank stocks, especially against the backdrop of declining risk-free interest rates, where the bond-like nature of bank stocks will continue to attract stable capital. On the other hand, as net interest margins stabilize, regional credit demand recovers, and non-interest income grows, some high-quality banks will demonstrate strong earnings elasticity. This could potentially shift valuation logic from a PB (Price-to-Book) basis to a PE (Price-to-Earnings) basis.