Broker Name: CGS International

Date of Report: October 10, 2025

Excerpt from CGS International report.

Report Summary

• Historically, October is the best month for China banks’ relative performance, typically outperforming the MSCI China index, and the sector is anticipated to benefit from seasonal and institutional sector rotation trends.
• Despite recent underperformance driven by weaker Southbound (SB) buy flows, the correlation between SB flows and banks’ outperformance remains strong, supporting the current Overweight sector call.
• Operating metrics for China banks are improving, with forecasts for continuing growth in pre-provisioning operating profit (PPOP) due to stabilised net interest margins and better wealth management fee outlooks.
• Favourable dividend yield spreads over treasury yields suggest estimated potential upside of 26-34% for China bank shares if yield spreads revert to historical averages.
• Top stock picks include China Merchants Bank (CMB), China Construction Bank (CCB), ICBC, and Chongqing Rural Commercial Bank (CQRCB), with CCB and ICBC noted for attractive valuations and dividend yields.
• Risks include investor sector rotation away from banks and unexpected adverse policy changes.
• ESG is a growing focus, with China banks developing green finance solutions; however, governance concerns remain due to state ownership and directed lending to strategic sectors.
• Sector is rated Overweight based on easing PPOP pressures, strong dividend outlook, and historical outperformance patterns in Q4.

Above is an excerpt from a report by CGS International. Clients of CGS International can be the first to access the full report from the CGS International website : https://www.cgs-cimb.com