Morgan Stanley Fund: Chinese bank stocks are expected to outperform the market for four consecutive years until 2025.

Morgan Stanley Fund has stated in a report that, against the backdrop of China's transformation in development mode, Chinese bank stocks are expected to outperform the market for the fourth consecutive year in 2025. With returns on other investment products generally declining, the more stable profits and dividends of the banking industry may attract more capital flow into Chinese bank stocks. Morgan Stanley Fund believes that China's shift in focus from supporting growth to risk control will continue to be effective. In China's more cautious development environment, this will help major banks create sustainable shareholder returns, and the value and dividends of the banking industry are expected to continue to perform well. China has shifted its focus from supporting growth to risk control since 2021. Despite initial market doubts, it has been proven that this shift is sustainable, driving Chinese bank stocks to outperform the broader market for three consecutive years (from 2022 to early 2024). As of July 30, 2024, the average total return of A-share and H-share bank stocks covered by Morgan Stanley Fund over the past three years is around 35%, while the Shanghai and Shenzhen 300 Index and the Hang Seng Index have declined by approximately 25% and 28% respectively. Morgan Stanley Fund stated that under the new monetary policy framework, the net interest margin is expected to gradually stabilize. The net interest margin may face slight downward pressure in 2025, but is expected to rebound in 2026, which could drive gradual recovery in bank profits. Furthermore, policymakers have strengthened their focus on long-term risks in recent months, and have continuously implemented new risk control policies, which will help banks control long-term credit costs. Morgan Stanley Fund believes that the stabilizing net interest margin and continued risk control will enhance market confidence in the future profitability and dividends of the banking industry. It is expected that the average return on equity (ROE) of banks will stabilize at around 10% in 2025 and 2026, while banks can maintain stable profit growth.