Investment Rating - The industry outlook for the Chinese financial sector is rated as Attractive [5]. Core Insights - The Chinese financial industry is expected to enter a positive cycle in 2026 after hitting a low in 2025, characterized by a gradual recovery in new loans and financial asset yields, orderly digestion of high-risk financial assets, stable credit costs, and active capital markets [1][8]. - Key favorable trends for financial stocks in 2026 include stable nominal GDP growth, a shift in policy support from credit to fiscal measures, steady digestion of existing financial risks, reduced policy intervention in loan growth and pricing, and decreased policy volatility [1][8]. Summary by Sections Economic Environment - The macroeconomic team forecasts stable nominal GDP growth in 2026, slightly higher than in 2025, providing an optimal opportunity for financial sector investment [8]. - The shift in policy support from monetary to fiscal will help control financial risks and support financial asset yields in 2026 [8]. Financial Asset Yields - Financial asset yields are expected to gradually recover in the second half of 2026, driven by a slowdown in loan supply, a renewed focus on risk pricing, and alleviation of deflationary pressures [2][10]. - The banking sector's net interest margin is anticipated to bottom out in the first half of 2026 and rebound later due to delayed deposit repricing [12][13]. Growth in Financial Assets - Continuous strong growth in household financial assets, projected to maintain over 10% growth in 2026, will support robust growth in bank fee income and double-digit growth in insurance premiums [14][17]. - The capital market is expected to remain active, further enhancing the revenue streams for banks and insurance companies [14][19]. Credit Risk Management - The credit growth rate has slowed to 6%, with a significant reduction in new risk accumulation, indicating a shift from expansion to digestion and mitigation of financial risks [15][16]. - The banking system is expected to continue digesting high-risk financial assets, with non-performing loans being managed effectively [16]. Stock Recommendations - The insurance sector is favored, with Ping An being the top pick due to its structural growth potential and product innovation [2][17]. - In the banking sector, Bank of Ningbo is highlighted for its strong revenue and profit growth, while Minsheng Bank shows potential for recovery [2][18]. - For brokerage firms, CICC and Futu are recommended due to their market positions and growth prospects [2][19].