China Financials_ Banks' shares hitting new highs; what to do from here_

Summary of Conference Call on China Financials Industry Overview - The conference call focuses on the Chinese banking sector, highlighting the performance of major banks such as BOC, CCB, ABC, and ICBC, which have reached new highs in their share prices as of December 30, 2024 [2][46]. Key Points and Arguments 1. Market Performance: - Attractive dividend yields and rational policies have driven major banks' shares to all-time highs, with significant appreciation noted in the shares of BOC, CCB, ABC, and ICBC [2][46]. 2. Monetary Policy Outlook: - A forecast of modest 15-20 basis points (bps) cuts in the Loan Prime Rate (LPR) and similar deposit rate cuts in 2025 is expected to support banks' Net Interest Margins (NIM) and share performance [3][12]. - The People's Bank of China (PBOC) is anticipated to utilize a combination of tools, including Reserve Requirement Ratio (RRR) cuts and repos, to maintain an accommodative monetary policy [3][20]. 3. Economic Cycle: - The first natural bottom of economic cycles in late 2025 is expected to reduce market concerns regarding bank risks and long-term rates, potentially leading to a valuation re-rating for banks [3][33]. - The government is expected to provide modest fiscal support rather than major stimulus, with a projected Rmb2 trillion fiscal expansion in 2025 [39][42]. 4. Banking Sector Dynamics: - The focus on market-oriented interest rate reform in 2025 is expected to benefit banks by allowing more flexibility in loan pricing, which could stabilize loan yields and narrow NIM decline [23][25]. - The average loan yield has declined significantly, indicating a compression of the risk premium, which may stabilize in the coming years [27][32]. 5. Investment Recommendations: - Top picks include PSBC (1658.HK), ABC-H (1288.HK), and CCB-H (0939.HK), with expectations of further share re-rating after recent highs [3][46]. Additional Important Insights - The PBOC injected approximately Rmb2-3 trillion of liquidity into the market in 2024, which is expected to increase in 2025 to support a modestly loose monetary environment [15][20]. - The removal of quantitative monetary policy targets is seen as a shift towards a more market-oriented approach, which could enhance credit allocation efficiency [23][24]. - Despite the anticipated support, total credit growth is expected to moderate from 9.2% in 2023 to approximately 7.5% in 2025, reflecting a rational approach to economic support [42]. This summary encapsulates the key insights from the conference call regarding the Chinese banking sector, its performance, and the anticipated economic and policy developments.