The spectacular surge of bank stocks, particularly the Industrial and Commercial Bank of China (ICBC), has become a point of intrigue in the financial landscape of 2024. As the calendar flipped to a new year, social media was abuzz with comments from stock market enthusiasts, some humorously dubbing ICBC the "New Year stock." On December 25, 2024, ICBC's market value soared to unprecedented heights, even surpassing that of China Mobile, marking a significant milestone in the A-share marketOverall, the bank's stock price appreciated by a striking 52.39% over the course of the year, equating to a staggering increase in market capitalization of approximately 695.26 billion yuan.

This remarkable performance was not an isolated eventThe banking sector in A-shares witnessed a robust rally, with most listed banks experiencing a rise in their stock pricesData from Wind indicated that the bank sector index experienced a remarkable surge, gaining 43.53% from the beginning of the year until the end of December

This figure was in stark contrast to the Shanghai Composite Index, which only managed a modest 14.68% increase, highlighting the banking sector's exceptional performance and setting a record for its largest annual growth in nearly a decade.

In 2024 alone, an impressive 27 bank stocks enjoyed gains exceeding 30%. Out of these, 11 financial institutions, including ICBC and Agricultural Bank of China, saw their stock prices increase by more than 50%. Cumulatively, the banking sector's market value on the A-share market surged by over 3.5 trillion yuan throughout 2024.

What exactly drove this fervent enthusiasm for bank stocks? Delving into the underlying factors reveals a narrative of stability intertwined with growth and progressive market expectations.

Throughout the year, the performance of bank stocks stood out distinctly on the A-share stageAccording to Wind data, 42 listed banks in A-shares almost universally recorded upward trajectories, with only Lanzhou Bank posting a minor decline of around 1%. Among the remaining 41 banks, 40 saw their share prices rise by more than 10%. Specifically, there were 11 banks with increases surpassing 50%, among which Shanghai Bank led with an impressive rise of 68.98%, while Shanghai Rural Commercial Bank, Chengdu Bank, and Pudong Development Bank also enjoyed gains exceeding 60%.

Furthermore, the rise was not merely limited to ICBC, as other significant state-owned banks consistently reached historical peaks in stock prices

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Agricultural Bank and Bank of China saw their stocks grow by 54% and 45.24% respectively, while China Construction Bank grew by 42.43%. Collectively, the market value of the "Big Four" banks, which includes ICBC, Agricultural Bank, Bank of China, and China Construction Bank, surged by over 2.1 trillion yuan in 2024.

As 2024 wound down, the momentum experienced by bank stocks continued unabatedFrom December 23 to December 25, major banks like ICBC, Agricultural Bank, Bank of China, and China Construction Bank achieved historic highs in stock prices over the course of three consecutive trading days.

Several economists and financial experts attribute the sustained strength of bank stocks in A-shares to their intrinsic stabilityEconomist Yu Fenghui highlighted the critical role of the banking sector as an integral part of the national economy, explaining that the performance of banks is closely linked to the macroeconomic environment

Consequently, in a stable economic setting, bank stocks tend to exhibit consistent and solid performance.

Lu Minfeng, a senior researcher and professor at the Shanghai University Institute of Financial Technology, elaborated on this conceptHe pointed out that the bank industry occupies a vital position in the economic system, exhibiting cyclical characteristics that favor financial stability during periods of orderly economic progressionIn addition, the stringent regulatory framework that governs the banking sector contributes to the security of reputable banks, ensuring their foundational stability over the long term.

This stability manifested prominently in the performance indicators of listed banksFor instance, in the first three quarters of 2024, a total of 42 banks collectively generated a net profit of 1.68 trillion yuan, showcasing a year-on-year growth of 1.49%. Historical comparisons from 2021 to 2023 also revealed a progressive increase in net profit among listed banks.

Moreover, the banking sector's appeal to risk-averse investors accelerated during this period, with data indicating that eight of the top ten holdings among insurance companies were bank stocks

As identified funds sought out stable investments, banks emerged as favored targetsFurthermore, the attractiveness of large-cap, trustworthy stocks led to increased interest from passive funds as investors leaned towards exchange-traded funds (ETFs) tied to broad market indices, dividend indices, and sector indices.

Both analysts and experts highlighted the role of high dividends offered by bank stocks in their recent performanceThe divestment policies introduced since 2024 further emphasized the importance of dividend distributionVarious regulations, including adjustments to the management of state-owned enterprises’ market capitalization, aimed to improve dividend stability and predictability.

Consequently, as the end of the year approached, banks prepared for midterm dividends in early 2025, with many institutions announcing substantial payouts exceeding 250 billion yuan, thereby creating an environment for speculative trading as investors sought to capitalize on dividend announcements.

Against the backdrop of a declining interest rate environment and shrinking deposit returns, the stock dividend rates became increasingly pertinent to market participants

Many investors began to entertain the notion that it might be more profitable to "buy banks" than to "save in banks," given that dividend yields for bank stocks often exceeded returns from traditional banking products.

However, these favorable circumstances didn’t entirely mitigate the underlying issues faced by bank stocksMany institutions continue to grapple with low valuations, with a significant number exhibiting a price-to-book ratio below one—illustrating a phenomenon where the market value is less than the net asset value per share, known as "breaking below book value." As noted, such a situation persistently underscores the banking sector's valuation dilemma and creates hurdles that challenge the sector's upward trajectory.

Despite the optimism surrounding the banks, they remain susceptible to fluctuations caused by changes in external economic factors and market sentiment