Zhongtai: Continue to be optimistic about the stability and sustainability of bank stocks, focusing on two investment themes.

Zhongtai released a research report stating that when the market is strong, bank stocks are short-term weak; but during economic downturns, bank stocks with high dividends will continue to be attractive, and the stability and sustainability of bank stocks are still favored. Two main investment themes for bank stocks: one is regional commercial banks with strong certainty, including Jiangsu, Shanghai, Chengdu-Chongqing, Shandong, and Fujian. The other theme is stable high-dividend logic, with a focus on large banks and joint-stock banks. Key points from Zhongtai: Changes in bank stock holdings in 3Q25: Overall capital outflow from the bank sector in the third quarter, with more outflow from northbound funds. Passive/active/northbound fund outflows in 3Q25 were 330.30/305.23/599.61 billion yuan, accounting for 1.43%/1.32%/2.60% of the third quarter turnover, respectively. Active funds: Due to changes in market risk preferences, the sector saw capital outflows in the third quarter, coupled with a high base in the second quarter, active fund holdings in bank stocks as a percentage of market value decreased by 3.74 percentage points to 2.04%; changes in positions were the main contributing factors; the decline in the banking sector contributed -0.61%, while position changes contributed -3.13%. At the end of 3Q25, active funds held a market value of 30.71 billion yuan in bank stocks (736.1 billion yuan in 2Q25). 1) Bank stock holdings as a percentage of total holdings of active funds: the top five are China Merchants Bank (0.47%), Bank of Ningbo (0.27%), Bank of Chengdu (0.19%), Bank of Hangzhou (0.16%), and Jiangsu (0.14%). 2) Changes in the holding of bank stocks by active funds: the top five in terms of increase in holdings are Changsha (+0.01%), Qingdao (+0.00%), Qilu (-0.01%), Xiamen (-0.01%), and Minsheng (-0.02%). 3) Increase or decrease in holdings of bank stocks by active funds: Changsha, Minsheng, Qilu, Ruifeng, and others received net inflows from active funds, with inflows of 2.78, 2.18, 0.80, and 0.17 billion yuan, respectively. Passive funds: The market value of bank stock holdings and their proportion of the free float market value of the banking sector declined compared to the previous quarter, but remained relatively high. 1) Scale and proportion of ETF funds in bank stocks: At the end of the third quarter, passive funds held a total market value of bank stocks of 1953.53 billion yuan, although the overall scale decreased by 14.47% compared to the end of the second quarter, it remained the second highest level since 2020. The total market value of bank stocks held accounted for 6.73% of the free float market value of listed banks, a decrease of 0.37 percentage points from the end of 2Q25. 2) Increase or decrease in holdings of bank stocks by passive funds: In 3Q25, most banks experienced capital outflows, with a total net outflow of 330.3 billion yuan in the banking sector. Only Agricultural Bank of China, Bank of Nanjing, Qilu Bank Co., Ltd. received inflows, with 10.69, 4.09, and 1.17 billion yuan, respectively. Northbound funds: Overall reduction in holdings of bank stocks. 1) At the end of 3Q25, northbound funds held a total market value of bank stocks of 1736.87 billion yuan, a decrease of 31.66% compared to the end of 2Q25, with the total market value of bank stocks held accounting for 5.98% of the free float market value of listed banks, a decrease of 1.92 percentage points from the previous quarter. 2) Looking at the increase or decrease in holdings of bank stocks by northbound funds, there was an overall net outflow from the banking sector in the third quarter, with a reduction of 599.6 billion yuan; in terms of individual stocks, Bank of Ningbo, Minsheng Bank, Chengdu Bank, and Jiangsu Jiangyin Rural Commercial Bank received net inflows of 8.94, 2.04, 1.82, and 0.77 billion yuan, respectively. State-owned funds (Huijin, CIC, social security and other institutional funds): The market value of holdings slightly declined, but remained relatively high. 1) State-owned funds held a total market value of bank stocks of 4.5 trillion yuan in 3Q25, a decline of 2.9% compared to 2Q25, but still at the second highest level since 2023; the market value of bank stock holdings accounted for 79.3% of total stock holdings (top ten holdings). 2) Apart from state-owned banks, the top three banks held by state-owned institutional funds were China Merchants Bank, Shanghai Pudong Development Bank, and Industrial Bank, accounting for 0.37%, 0.25%, and 0.22% of the total holding market value, respectively. 3) The Agricultural Bank of China's holding ratio increased by 2.6 percentage points, with Xiamen Bank and Bank of Ningbo entering the list for the first time. Investment advice: 1. The operating model and investment logic of bank stocks have shifted from a "cyclical" to a "weak cycle" phase: when the market is strong, bank stocks are short-term weak; but during economic downturns, bank stocks with high dividends remain attractive, and the stability and sustainability of bank stocks are still favored; two main stock selection logics. 2. Two main investment themes for bank stocks: one is regional commercial banks with strong certainty, including Jiangsu, Shanghai, Chengdu-Chongqing, Shandong, and Fujian. The other theme is stable high-dividend logic, with a focus on large banks and joint-stock banks. Risk warning: Economic downturn exceeds expectations, and there may be risks of outdated or untimely information in the research report.