According to Zhitong Finance APP, Guosen Securities released research reports stating that the determination to stabilize growth in this round of policies cannot be underestimated. The economic fundamentals are likely to show a steady improvement by 2025, and government investment will gradually stimulate the recovery of private investment demand, which will bring good investment opportunities for the banking sector. However, the banking sector has obvious late-cycle characteristics, and backtesting results indicate that a good investment timing in the banking sector will have to wait until a wide credit environment emerges, and it may even be necessary to wait for private investment to recover. The effects of policies need a process to manifest, especially since the lack of confidence among residents and enterprises has persisted for two years, making it more challenging to boost resident confidence compared to previous times. Currently, there are still differences in the market's expectations for economic fundamentals, particularly in the uncertain environment of the new usa government's implementation of tariffs and other policies, therefore, the improvement in economic fundamentals is difficult to verify in the short term and form a market consensus.

Guosen Securities' main points are as follows:

The determination to stabilize growth in policies cannot be underestimated, just waiting for the recovery of financing demand.

A series of policy measures since September 24, 2024, have demonstrated a strong determination to promote steady economic improvement. The bank is determining that fiscal policy in 2025 will be more proactive, balancing investment and consumer demand, further promoting the recovery of domestic demand.

In terms of mmf policy, the overall situation remains moderately loose, and a reduction in reserve requirements and interest rates is still expected. However, due to intentions to protect net interest margins, it is anticipated that the LPR will decrease by approximately 30 basis points in 2025; the interest rate on deposits is expected to be significantly lowered to counteract the impact of the LPR decline on net interest margins.

Overall, the bank is determining that the narrowing of net interest margins in the banking industry will slow to around 10 basis points by 2025, with the negative impact of net interest margins on performance growth significantly decreasing, and the overall fundamentals of the banking industry remaining stable.

Accompanied by a series of continuing stable growth policies, the economic fundamentals are likely to show a steady improvement by 2025.

Government investment will gradually drive the recovery of private investment demand, but the effectiveness of the policies takes time to manifest, especially as the confidence of residents and businesses has remained weak for two years, making it more challenging to boost residents' confidence compared to the past. Therefore, there are discrepancies in the current market expectations for economic fundamentals, particularly in the uncertain environment regarding the new government's policies on tariffs in the usa.

For the banking sector, the cyclical characteristics are quite evident.

A review of past results indicates that good investment timing for banks must wait until credit broadens, and it might even be necessary to see private investment grow. Therefore, the view is that this round of market conditions will provide relatively good investment opportunities in the banking sector, but it may take until private investment demand recovers before there are both excess returns and absolute returns. However, considering the significant strength of the current stable growth policies, it is expected that once the financing needs of the real sector increase, active investment can begin.

Stock selection strategy: In the short term, continue to focus on certainty, while in the medium to long term, investment opportunities will emerge.

The above mentions state that in past rounds of the banking sector's market review results, the appreciation in valuation driven by improving economic fundamentals often needs to wait until the economic recovery is verified. Therefore, in the short term, 'low valuation + stable fundamentals' remains an important direction for stock selection, particularly from the end of this year until early next year, when insurance institutions may bring about a change in style as they allocate funds.

Currently, the valuations of large banks are still not considered high, although subsequent private placements may dilute the dividend yield, there remains a certain level of attractiveness, indicating that large banks still have decent allocation value; at the same time, the attractiveness of some regionally strong banks with relatively reasonable valuations has increased, with suggestions to monitor the bank of hangzhou (600926.SH), bank of suzhou (002966.SZ), among others. In the medium to long term, alongside the gradual manifestation of the stable growth policies' effects, high-quality growing banks with high economic sensitivity, such as bank of ningbo (002142.SZ), cm bank (60036.SH), jiangsu changshu rural commercial bank (601128.SH), and ruifeng bank (601528.SH) may welcome good investment opportunities, hence active allocation is advised.

Risk warning

1. Economic recovery is not as expected, the loan supply and demand pattern is deteriorating, leading to a further narrowing of the net interest margin in 2025.

2. Currently, the bullish policies for the real estate sector are being continuously intensified, and the effects of these policies are gradually becoming apparent. However, there are many influencing factors in the real estate market; if the real estate prosperity continues to decline, the exposure of non-performing real estate loans may significantly impact the fundamentals of the banking industry.