The Zhitong Finance app learned that CITIC Construction Investment released a research report saying that for a complete round of banking sector market conditions, it is necessary to experience the three key points of policy bottom, economic bottom, and performance bottom in sequence. The sector's performance characteristics will change markedly before and after the three major points. Currently, it is between the policy bottom and the economic bottom. It is expected that the sector will be dominated by shocks. After the economic bottom is confirmed, the sector beta market will begin, and after the performance bottom is confirmed, it will enter the alpha stock selection stage. In terms of target selection, it is recommended to be both large and small. One side closely follows the main beta line of the major state-owned sector, and the other side selects high-quality regional banks. Previously, they were suppressed by pessimistic economic expectations, and it is expected that there will be plenty of room for growth after the third bottom is established.

The main views of CITIC Construction Investment are as follows:

In the history of the recovery, in a complete round of banking sector market conditions, the three bottoms that appeared in sequence were critical to grasping the sector strategy: the bottom of the policy - the bottom of the valuation, entering a period of turbulence; the bottom of the economy - the upward breakthrough in valuations and entering a period of general growth; the bottom of performance - the emergence of premiums for high-quality banks and the emergence of a period of differentiation: after the bottom of the policy is confirmed, the bottom of bank valuation will appear, and the downward trend will stop falling or there will be a wave of upward correction of the market. After the economic bottom is confirmed, the banking sector will enter a phase of general growth. Among them, undervalued banks will rise first, and there will be a relatively large increase; it should be emphasized that the bottom of the economy is the economic bottom confirmed by the market, and the actual economic bottom will lag behind in time. After the bottom of the performance was confirmed, the banking sector continued to rise for a longer period of time, and individual stocks with better fundamentals rose even more. However, depending on how fast or slow the economic bottom is, the pace of bank valuation repair is also different: 1) Policies are precise and strong, the economy and performance bottomed out quickly, and the market confirmed in a timely manner, close to the point where it actually occurred. The three bottoms progressed, and the sector beta market continued throughout, such as 2008 and 2020. 2) The policy effectiveness testing period is long, and market sentiment is strong. Before the economic bottom is verified, there are range fluctuations. After the economic bottom appears, after repeated market tests and confirmation, valuations can only continue to break through upward, such as 2016-17; if the economic bottom is falsified, the valuation correction trend will soon end, such as 2012 and 2014.

Currently, we are in the transition stage from the bottom of the policy to the bottom of the economy. It is expected that the bottom of the economy and the bottom of performance will appear one by one, and that the banking sector will begin valuation restoration. Since the end of 2022, the liberalization of the epidemic, real estate policy optimization, local debt settlement, and the central bank's statement on reasonable interest spreads on banks have gradually refined a solid policy base, and the banking sector's valuation base has been established simultaneously. However, the economic bottom and performance bottom have yet to appear, and the banking sector is currently expected to be dominated by shocks. Stock prices and dividend rates fluctuated steadily during the turbulent period, which is the best window period for long-term capital such as insurance to allocate high-dividend OCI assets. In 2024, it is expected that the policy will continue to gain strength and effect. It is expected that the economic bottom and performance bottom will be established, banks will be pushed to break through range shocks, and enter a period of continuous valuation repair. The economic bottom mainly focuses on core indicators such as PPI, PMI, and M1. Currently, asset quality is relatively stable, and bottom performance means bottom interest spreads and bottom revenue growth.

Fundamental outlook for 2024: new balance between volume and price, stable asset quality. In terms of volume, credit growth across the industry is expected to be flat or slightly less year over year, while high quality regional banks are expected to maintain a year-on-year increase. In terms of prices, net interest spreads are expected to continue to narrow, but the decline is less than in 2023. It is expected to continue to decline quarterly in the first half of the year, and it is expected to stabilize quarterly in the second half of the year. In terms of asset quality, risk mitigation policies in the urban investment and real estate sectors continue to be implemented, and overall asset quality is expected to remain stable.

Risk warning:

(1) Regulation continues to guide banks to benefit the real economy, leading to a further sharp narrowing of interest spreads.

(2) The progress of economic recovery has fallen short of expectations, the ability of enterprises to repay debts has weakened, and some enterprises with poor credit levels may be at risk of default, thus triggering the risk of bad bank exposure and a sharp decline in asset quality.

(3) The concentrated exposure of risks in key areas such as real estate and local financing platform debt has had a major impact on banks' asset quality and greatly reduced banks' profitability.

(4) The credit leniency policy falls short of expectations, and the rapid economic development of the region where the company operates is unsustainable, thus having a great adverse impact on the company's credit investment. (5) The retail transformation did not meet expectations, and large-scale fluctuations in the equity market affected the company's wealth management business.