(Yicai) Feb. 17 -- Many of China’s bank stocks, which were overlooked by investors for a long time, surged to multi-year or historical highs in the last week. Over the past year, their high dividends and steadily improving performance have made them increasingly attractive to long-term investors, especially in today’s low-interest-rate environment.

Industry leader Industrial and Commercial Bank of China’s share price [SHA:601398; HKG:1398] reached all-time highs in both Shanghai and Hong Kong on Feb. 14. In Shanghai, the stock rose by 4.4 percent over the course of the week. And Bank of Communications’ shares [SHA:601328; HKG:3328] hit a record high of HKD6.57 (USD0.84) in Hong Kong that day.

Other bank stocks also logged significant gains over the past week. Bank of Qingdao [SHE:002948] surged 6.1 percent, China Construction Bank [SHA:601939; HKG:0939] jumped 5.5 percent in Shanghai and Industrial Bank [SHA:601166] soared 5.1 percent.

Over the past year, the CSI Bank index has surged 25 percent from a year earlier.

The government’s encouragement of long-term capital, such as insurance and social security funds, to hike investment in equity assets has made high-dividend bank stocks a key part of long-term investment portfolios, Hu Yu, chief economist at Xinding Fund, told Yicai.

As long-term interest rates continue to tumble, investors are reassessing the value of equity assets, Hu said. Due to their high dividend yields and spreads, quality bank stocks have become the preferred choice for long-term, patient capital.

The dividend yield of the six big state-owned banks’ Hong Kong stocks is currently more than 8 percent, significantly higher than the average dividend dished out by all the other companies listed on the Shanghai and Shenzhen stock markets. This makes bank stocks the preferred investment choice for insurance capital in the era of low interest rates.

In 2024, the cash dividends of banks that have gone public on the Shanghai and Shenzhen bourses amounted to CNY613.3 billion (USD84.6 billion), according to Wind data.

Last year’s steadily rising operational performance was also a key factor supporting the popularity of bank stocks. Of the 16 banks that have released their 2024 performance reports so far, their combined net profit jumped 5.4 percent year on year to CNY477.1 billion (USD65.8 billion), while revenue climbed 2.3 percent to CNY1.2 trillion (USD165.5 billion), according to Wind data.

Fifteen out of the 16 lenders posted a jump in net profit last year from the year before, with eight of them logging growth of more than 10 percent. Shanghai Pudong Development Bank was leader of the pack with net profit surging 23.3 percent.

With rising share prices, banks’ market capitalization is also on the rebound. The price-to-book ratio, which measures the market valuation relative to the firm’s book value, of 42 banks listed in Shanghai and Shenzhen is 0.61, up from 0.52 at the beginning of last year.

As more medium- and long-term funds enter the market, the value of high-dividend assets will continue to grow, according to a new research report released by Dongxing Securities. It is expected that, with improvements in the macroeconomy, bank stocks will undergo a new round of recovery in valuations driven by better-than-expected fundamentals.

Editors: Tang Shihua, Kim Taylor