China Banks Style rotation drives selloff; CMB the yield bright spot

Research evidence excerpt

China Banks Style rotation drives selloff; CMB the yield bright spot

t a 380bps spread over the Big 4 J.P. Morgan Broking (Hong Kong) Limited

and its 2026E EPS growth 3% above the Big 4 if we consider the dilution risk of Haomin Chen

SOE banks. (86-21) 6106 6347

haomin.chen@jpmorgan.com

• Dividend yields for H shares of SOE banks are not attractive, even for SAC Registration Number: S1730524080002

Southbound investors: We estimate that on an ex-tax basis (10% dividend tax J.P.LimitedMorgan Securities (China) Company

for all investors), H share SOE banks are trading at a dividend spread of 40bps

against the 10Y UST, below the 10Y mean of 280bps, and thus not attractive

for overseas investors. For example, HSBC/STAN offer 6%/7% total return (div

+ buyback) in 12M, higher than H-share SOE banks’ 5.5% on average.

Southbound investors may compare the dividend yield (excluding 20% div. tax)

to the 10Y CGB. The current dividend spread is 260bps, close to the 10Y

average of 220bps (Figure 1). The risk-reward may be more attractive for

insurance companies, as they are exempt from dividend tax, and Ping An

Insurance is the one most actively investing into China banks. However, its

ownership in PSBC, ICBC, CCB, CMB and ABC is above 4%, close to the 5%

regulatory threshold (Figure 5), capping Ping An’s ability to increase its

holdings in these banks. Having said that, if H share SOE banks’ dividend yield

reaches 6% (with an ex-tax div spread of ~300bps), implying another 9%

downside to share prices, we may see more support for share price

performance.

• A share SOE banks’ dividend yield is not attractive, particularly if we

consider the dilution risk: SOE banks’ A share 2026 dividend yield and

dividend spread are 4.4% and 270bps, higher than the respective 10Y means by