How High Are the Returns on Low-Valuation Banks?
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Key Views
Treating provisions exceeding required coverage as a profit reservoir released evenly over ten years lifts annualized returns to 15.68%, 14.46%, and 14.70%. With 10bp one-way trading costs, monthly rebalancing works best: the adjusted low-PE (TTM) top-20% portfolio returned 16.99% (Sharpe 0.58) and the adjusted high-dividend top-10% portfolio 15.36% (Sharpe 0.58). After excluding banks with low excess provisions relative to net assets, the adjusted low-PB top-10% portfolio reached 19.00% annualized.
Recommended Securities
Banking sector rating: "Recommend" (maintained). Adjusted low-PE (TTM) top-20% constituents include Suzhou Rural Commercial Bank, Bank of Guiyang, Changshu Rural Commercial Bank, and Bank of Chengdu, among others; these are backtest samples, not individual stock recommendations. Historical backtests may not predict future returns.