CGS International — October 10, 2025

Excerpt from CGS International report.

• China banks have historically outperformed the MSCI China index in October, with an average outperformance of 2.8 percentage points since 2005. The sector has recently underperformed but is expected to recover due to seasonal trends and improving operating metrics.
• Southbound investor flows are strongly correlated with China bank share performance. While flows slowed in Q3 2025, improving trends in adjusted pre-provisioning operating profit (PPOP) and attractive dividend yield spreads suggest potential share price upside of 26–34% if yield spreads return to historical averages.
• Top stock picks highlighted are China Merchants Bank (CMB), China Construction Bank (CCB), ICBC, and Chongqing Rural Commercial Bank (CQRCB), driven by quality management, attractive valuations, and dividend yields.
• Risks include investor sector rotation and worse-than-expected policy changes. ESG risk is considered medium, with banks actively expanding green finance, though short-term lending to energy sectors may affect ESG scores.
• The report maintains an Overweight rating for the China banking sector, citing strong seasonal factors, institutional investor interest in defensive sectors, and improving fundamentals.

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/