CITIC SEC: Financial stocks are still in the "economic recovery driving financial demand expansion" cycle. Insurance and securities are the first to benefit, and absolute returns from banks can be expected.

CITIC SEC released a research report stating that in the era of low interest rates, residents' deposits are accelerating towards insurance, wealth management, and the stock market. By 2026, the amount of medium- to long-term fixed deposits maturing will reach 44.8 trillion yuan, driving non-bank deposits to potentially achieve trillions in growth. Long-term interest rates are stabilizing, with the 30-year treasury bond yield rising to 2.25% as of May 15, 2026, improving fixed income allocations. The flexibility of innovative stocks is being released, significantly increasing equity returns. Over the long term, the industry landscape will accelerate towards concentration at the top, shifting from capital expansion to customer management. The pressure from the reduction in state-owned shares is limited, and insurance assets continue to increase their holdings in financial stocks. It is expected that insurance assets will increase by over 6 trillion yuan in equity funds in the next five years, with financial stocks potentially accounting for over 30% of this. The main viewpoints of CITIC SEC are as follows: Changes in liabilities: Funds are migrating in the era of low interest rates. By 2026, the maturity of medium- to long-term fixed deposits will peak, combined with a decline in deposit rates. Year-to-date, residents' deposits are accelerating towards insurance, wealth management, and the stock market, and the scale of non-bank deposits is expected to reach trillions in growth. The insurance industry's dividend insurance is facing a strategic opportunity, the securities industry's margin interest income and wealth management business are clearly benefiting, and banks are expected to optimize their income structure through the sale of wealth management products, transitioning from "interest income" to "fee income". At the same time, funds are concentrating in large banks and high-quality banks, with the market share of wealth management continuing to concentrate in top institutions. Asset flexibility: Bond yields stabilize and rise, with innovative stocks contributing excess returns. From the second half of 2025 to the first half of 2026, the 10-year treasury bond yield formed a bottom platform in the range of 1.75% to 1.90%, with the marginal increase in long-term interest rates significantly improving the coupon income of banks, insurance companies, and securities firms in new bond allocations. During the same period, the new business value of insurance has reached parity with the return rate, and the 30-year treasury bond rising to 2.25% has eased margin pressure. Innovative stocks are surging, and under the new accounting standards, the elasticity of equity investment in insurance companies has been magnified, benefiting securities firms' follow-on and proprietary businesses. Accelerated concentration of industry landscape: From capital expansion to customer management. By 2024, the value-added of China's financial industry as a percentage of GDP has reached 7.2% (higher than Germany and Japan), ending a period of extensive growth. The current center of interest rates is in a downward trend, forcing business models to shift from "earning interest differentials" to "earning service fees", with wealth management and comprehensive service capabilities becoming core competencies. In the long term, strict regulation and the "restriction on leveraging requirements" are driving top institutions to form a siphoning effect in terms of capital, talent, and technology, with small and medium-sized institutions speeding up their exits under a wave of mergers and acquisitions, concentrating equity and licensing resources towards the top. Trading perspective: The pressure from state-owned share reductions is limited, and the benefits of insurance asset holdings are continuing. The pace of state-owned share reductions varies: the securities sector's holdings are relatively small (168 billion, accounting for 1.7%); the banking sector's reductions are slow (172.9 billion, accounting for 1.3%); and attention should be paid to the subsequent selling pace of the insurance sector (34.7 billion, accounting for 2.5%). The trend of increasing the allocation of low-volatility assets in insurance companies' OCI accounts continues, with nearly a record number of acquisitions since near 10 years in 2025 (41 times), with financial stocks accounting for more than half of the acquisitions. It is expected that in the next five years, insurance funds will increase their equity allocation by over 6 trillion yuan, with financial stocks potentially accounting for over 30% of this. Risk factors. A sharp decline in macroeconomic growth; significant market fluctuations, a decrease in A-share trading volume; significant interest rate fluctuations or credit risks exceeding expectations; unexpected changes in regulatory policies; a deterioration of banking asset quality beyond expectations; a decrease in the scale of equity financing in investment banking business; losses in investment business; agents dropping out; slow policy sales; a global environment of high interest rates, as well as the reduction in state-owned shares, which may suppress short-term market and insurance stock performance. Investment strategy: Financial stocks are still in the "economic recovery driving financial demand expansion" cycle, with insurance and securities benefiting first, and the prospect of absolute returns from banks. Insurance is in the best positioning window, focusing on top companies with outstanding investment and service capabilities. The valuation of securities shows cost-effectiveness (PB within the bottom 10% in nearly a decade), with a focus on industry differentiation and recommending top securities firms with international investment banking capabilities and characteristic securities firms expected to break through through mergers and acquisitions. Banks have actively extended their long-term funds, and there is potential for absolute returns.