The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that since September 24, the central government has introduced a package of policies in response to this year's weak economic performance, starting from various aspects, to stimulate a recovery in demand. However, actual macroeconomic indicators are still in the process of gradual restoration, and the banking sector is in the background of “strong policy expectations and weak fundamentals.” According to the different performance of the future economy, each banking sector will have a different main investment line. If the economy can recover as policies increase, the banking sector will return to fundamental stock selection; if the effects of the policy fall short of expectations and the economic recovery trend is unclear, then the banking sector will return to an investment logic dominated by high dividends and complemented by other concepts such as debt conversion.

The main views of CITIC Construction Investment are as follows:

Under the different performance of the future economy, each banking sector will have different main investment lines.

Assuming that the economy can recover as policies continue to be strengthened, the banking sector is expected to repeat the trend from 2016 to 2019, and the sector logic will return to basic stock selection. Among them, the recovery of the real estate chain and wealth management depends on CMB, and the continued improvement of the economy depends on high-quality regional banks; assuming that the effects of the policy are not obvious and the economic recovery trend is unclear, then it is expected that the banking sector will continue the upward logic from 23 years to the middle of this year, mainly based on high dividend strategies, complemented by other concepts such as debt conversion.

Fundamental outlook: The growth rate of scale will continue to be pressured, and the decline in net interest spreads is expected to narrow.

Demand for effective credit is insufficient, and the center of large-scale growth is expected to continue to decline. It is expected that under a package of economic stimulus policies, demand for credit will gradually pick up, driving the speed of bank expansion and the joint improvement of the credit investment structure. In terms of net interest spreads, net interest spreads are still under pressure due to lower interest rates on existing mortgages and declining LPR, but the decline is expected to narrow throughout the year, and debt cost optimization will be the key to the differentiated performance of banks' net interest spreads.

Fundamental outlook: Revenue is expected to recover, and risk trends still need attention.

Thanks to the gradual decline in the impact of the base figure and the recovery of the capital market, the volume of AUM continues to grow, and with “stable volume increases and prices,” the banking sector's revenue is expected to recover significantly. Asset quality indicators such as the non-performing rate are basically stable, but the interest rate of listed banks continues to rise, and retail risk trends still need attention. We look forward to the full resolution of key risk pressures under the impetus of various policies.

Investment advice

Major international banks in Hong Kong stocks can effectively hedge against the impact of interest rate cycles, thereby maintaining good trends in performance and dividend levels, achieving continuous and stable valuation increases, and outstanding allocation values. The overseas banking sector continues to focus on recommending major international banks in Hong Kong stocks: Standard Chartered Group (02888) and HSBC Holdings (00005).

In terms of the allocation of the A-share banking sector, priority is given to recommending high-quality bank targets such as China Merchants Bank (600036.SH), Bank of Chengdu (601838.SH), Bank of Nanjing (601009.SH), Changshu Bank (), Bank of Ningbo (002142.SZ), and Postbank (US) under the improvement in economic expectations and sector logic changes brought about by this round of policy changes downward. 601128.SH 601658.SH

Risk warning:

(1) Economic recovery has fallen short of expectations, corporate solvency is weakening, and some enterprises with poor credit levels may be at risk of default, leading to the risk of bad bank exposure and a sharp decline in asset quality.

(2) The concentrated exposure of risks in key areas such as real estate and local financing platform debt has had a major impact on the quality of banks' assets and greatly weakens banks' profitability.

(3) The strength of the credit leniency policy falls short of expectations, and the rapid economic development in the region where the company operates is unsustainable, thus having a significant adverse impact on the company's credit investment.

(4) The effects of retail transformation fell short of expectations, and large-scale fluctuations in the equity market affected the company's wealth management business.