A safe haven amid Iran tensions—Bank of China stocks

Global markets have been roiled by turmoil stemming from the Iran war, and Chinese bank stocks are gradually establishing themselves as defensive assets, supported by stable dividend yields and improving earnings outlooks.

Amid the outbreak of the Middle East conflict, the CSI 300 bank index has risen 2.7% cumulatively, while the CSI 300 benchmark index has fallen 5.7% over the same period. Analysts note that pressure on net interest margins at major Chinese banks is continuing to ease, alongside robust growth in fee and commission income, creating a possibility that first-quarter results may come in above expectations.

Against the backdrop of the market being driven by risk-off sentiment, Chinese bank stocks’ expected dividend yield of about 5%—far higher than the CSI 300 index’s 2.8% and the roughly 1.8% yield on 10-year government bonds—offers significant appeal to investors seeking defensive positioning.

Easing margin pressure, first-quarter results may beat expectations

Based on disclosed annual data, the narrowing in net interest margins at China’s largest state-owned banks has already become clearly more pronounced.

Industrial and Commercial Bank of China and Agricultural Bank of China saw their 2025 net interest margins narrow by 14 basis points each year over year to 1.28%, while in 2024 the narrowing for the two banks was 19 and 18 basis points respectively, indicating a fairly clear improvement trend.

As reported by the media, Citigroup analysts said that China’s banking sector has potential for first-quarter performance to surprise to the upside. Bank management has issued more positive signals regarding the outlook for revenue growth. The main drivers include marginal improvements in net interest margin pressure and strong growth in fee and commission income.

Wang Feng, chief financial analyst at Everbright Securities, said:

“In the banking sector as a whole—or in some individual banks—net interest margins may stabilize in the first quarter and even rebound. This will continue to draw investors’ attention.”

Dividend yield stands out, defensive characteristics become prominent

With rising global geopolitical uncertainty, the dividend appeal of Chinese bank stocks is particularly strong.

According to Bloomberg compiled data, the expected dividend yield over the next 12 months for China’s major bank stocks is about 5%. Not only does it significantly exceed the CSI 300 index’s overall level of 2.8%, it also far outstrips the yield of roughly 1.8% on 10-year government bonds.

Fu Zhifeng, Chief Investment Officer at Shanghai Chengzhou Investment Management, said:

“Given China’s relatively stable earnings outlook for the banking sector, the greater policy flexibility in responding to macro shocks, and the special role of the banking sector as a key systemic institution supported by the state, in an environment where geopolitical uncertainty persists, the price of Chinese bank stocks is expected to show stronger resilience than other sectors.”

Risk warning and disclaimer

        There are risks in the market; invest with caution. This article does not constitute personal investment advice, and it does not take into account any specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article align with their specific circumstances. Invest accordingly at your own risk.