China Financials_ 30° turn in policy & 180° turn in sentiment; where to invest_

Summary of Conference Call Notes Industry Overview - The discussion primarily revolves around the China Financials sector, focusing on the impact of recent policy changes on credit and risk cycles in the context of the ongoing property deflation cycle and economic growth challenges in China [1][4][17]. Key Points and Arguments 1. Policy Changes and Market Sentiment - Recent policy efforts are viewed as a modest shift rather than a complete reversal, aimed at improving market confidence and reducing downside risks [1][4]. - Improved communication from policymakers is expected to lower equity risk premiums for financial stocks, helping investors look beyond current economic cycles [1][17]. 2. Monetary and Fiscal Policies - Since 2021, loan yields have decreased by approximately 200 basis points to around 3.6%, with government bond issuance increasing from Rmb4 trillion to Rmb9.4 trillion annually [1][4]. - The focus remains on financial risk controls, with expectations of continued supportive policies, albeit with a cautious approach to avoid exacerbating existing risks [1][4]. 3. Economic Growth and Credit Demand - The industrial investment expansion has faced cyclical downturns, with growth needing to slow below 5% to mitigate PPI pressure and new credit risks [1][21]. - A rebound in credit demand is anticipated post-2H25, supported by ongoing industrial upgrades and a stabilization of the property market [1][22][24]. 4. Investment Recommendations - Insurance companies like AIA (1288.HK) and Ping An Insurance (2318.HK) are recommended as attractive investments due to reduced economic downside risks [1]. - Banks with high dividends, such as PSBC (1658.HK) and Ningbo (002142.SS), are also favored, while brokers and HKEx are seen as overvalued [1]. 5. Fiscal Measures and Government Revenue - The Ministry of Finance (MoF) has announced plans to raise government bond limits to address local government debt and has allocated Rmb2.2 trillion and Rmb1.2 trillion in local bond quotas for 2023 and 2024, respectively [11][12]. - Government revenue has significantly declined, with a 21.1% year-over-year drop in government fund revenue from January to August 2024 [12][13]. 6. Long-term Outlook - The property market is expected to find a bottom by 2H25, with ongoing government efforts to manage inventory levels and support credit demand [26][29]. - The financial system is projected to digest significant credit risks associated with the property sector, with estimates of Rmb3 trillion in credit costs already recognized [30]. Additional Important Content - The discussion highlights the importance of legislative changes aimed at protecting private businesses, which may take time to positively impact market sentiment [17][18]. - The ongoing industrial upgrades in China are expected to drive reasonable mid- to long-term growth and credit demand, despite current economic pressures [23][25]. This summary encapsulates the critical insights from the conference call, providing a comprehensive overview of the current state and future outlook of the China Financials sector.