Some global funds started dipping their toes in Chinese equities We track c800 active foreign funds that include Chinese equities as part of their their benchmark and altogether hold US$270bn of Chinese stocks. In aggregate, these funds cut their China underweight positions by 30bps to -1.3% during 3Q25, the least underweight since 4Q22. Out of these funds, 145 funds (AUM US$212bn) do not hold any Chinese equities as of 3Q25, which has declined from 167 funds in 2Q25. Funds that added Chinese equities back ...

October 22, 2025 10:00 PM GMT Asia Quant Perspectives | Asia Pacific Hedge China Factor Rotation; Stay Long Revisions in Rest of APxJ M The re-escalation of trade tensions has triggered a risk-off move and Value rotation in China equities, while factor shifts in APxJ- ex-China were less pronounced. We recommend treating these regions separately and advise Value+Composite Momentum in China, while staying long Revisions ex-China. Key Takeaways Factor rotation triggered by trade escalation: Recent trade tensio ...

Investment Rating - The report has lowered the average 2025 net profit growth forecast for covered banks to -5%, reflecting a decrease of 1 percentage point from previous estimates [15]. Core Insights - Negative net profit growth in 1Q25 for large SOE banks and CMB has led to stock price declines, prompting a reassessment of profit forecasts and target prices [1]. - Despite negative net profit growth, banks may still attract long-term funds due to limited downside on dividend yields compared to government bond yields [2][3]. - The report emphasizes the increasing importance of net profit growth in 1Q25, as investors have heightened expectations for shareholder returns following two years of excess returns [3][4]. - The report indicates that banks are facing challenges in achieving positive net profit growth in 2025 due to lower-than-expected net interest income (NII) and loan growth [11][15]. Summary by Sections Net Profit Growth - The average net profit growth forecast for covered banks is now -5% for 2025, with small banks BONB and BONJ expected to achieve 7% growth [15]. - Most banks are still releasing provisions, but not sufficiently to drive positive profit growth, and the potential for further provision releases is limited [5][15]. Dividend Payout Ratios - Banks may need to increase their dividend payout ratios to maintain stable dividends per share (DPS) amidst negative EPS growth [22][30]. - The report suggests that banks have the capacity to increase dividends, but their willingness remains uncertain [22][26]. Loan Growth and NIM - Loan growth for major banks is projected to be lower than previously expected, with NIM also declining more than anticipated [11][13]. - The report notes that while credit growth is expected to accelerate, overall loan demand remains weak due to external factors such as tariffs [13][40]. Fee Income and Consumer Finance - Some banks have reported better-than-expected growth in fee income, driven by bancassurance and fund sales [33]. - A potential recovery in consumer finance is anticipated in the second half of 2025, influenced by low base effects and banks seeking new business opportunities [31][34]. Stock Selection and Recommendations - Among large and medium-sized banks, CMB is viewed as having the least EPS dilution and the lowest required increase in dividend payout ratio, making it more capable of maintaining stable DPS [41]. - BONB is favored for its high growth potential relative to larger banks, while BONJ is rated Neutral due to ongoing convertible bond conversion processes [41].

Investment Rating - The report assigns a "Buy" rating to Bank of China (BOC), Postal Savings Bank of China (PSBC), and China Construction Bank (CCB) with target prices of Rmb 6.73/HK$ 5.00, Rmb 6.82/HK$ 5.59, and Rmb 11.14/HK$ 7.91 respectively [24][27][28] Core Insights - Four large state-owned banks in China announced a total capital raise of Rmb 520 billion, with Rmb 500 billion from the Ministry of Finance and Rmb 20 billion from other state-owned shareholders [1] - The capital injection will increase the average shareholding of the Ministry of Finance and Central Huijin Investment by 5 percentage points to 56% [1] - The capital replenishment is expected to be completed through A-share private placements by the end of 2025 [1] Summary by Sections Capital Raise Details - The capital raise will be evenly distributed among BOC and PSBC, with each bank raising approximately Rmb 120 billion [3] - The new shares will be issued at a price below 1x book value, representing a 16% premium over recent trading prices [3] - New shares as a percentage of outstanding shares post-recapitalization for BOC and PSBC will be 8% and 17% respectively [4] Capital Adequacy - The CET1 ratio for BOC and PSBC is projected to increase by 86 basis points and 151 basis points respectively [4] - The report indicates that to maintain dividend per share (DPS) at 2024 levels, dividend payout ratios would need to rise to 31-36% [5] Growth Projections - The announced capital raise, along with increased dividend payouts, would allow for a 7.9-9.3% growth in risk-weighted assets (RWA) assuming unchanged density [5] - The report anticipates a downward trend in RWA density, which would enable more asset growth without proportionally higher capital consumption [15] Comparative Analysis - The report notes that Agricultural Bank of China (ABC) and Industrial and Commercial Bank of China (ICBC) were excluded from the announced capital injections, with estimates suggesting they may require Rmb 150 billion each for capital support [18][19] - The average CET1 ratio increase for participating banks is expected to be 1.03 percentage points [21]