Morgan Stanley: The top picks for Chinese financial stocks this year are Ping An, CMBC, and CICC

Morgan Stanley published its outlook report for the Chinese financial industry this year, expecting that the Chinese financial sector will re-enter a positive development cycle after bottoming out in 2025, characterized by: gradual recovery of new loans and financial asset yields, orderly digestion of high-risk financial assets, stable credit costs, and an active capital market.

The bank believes that 2026 will be a stable year, with multiple favorable factors for Chinese financial stocks: (1) nominal GDP growth rate will be flat or slightly higher than in 2025, (2) policy support will continue to shift from "credit" to "fiscal," helping to reduce long-term credit risk, (3) existing financial risks will continue to be digested, with a reduction in the formation of new risks, (4) policy intervention in loan growth and pricing will decrease, reflected in the fading targets for M2 and social financing growth, (5) policy volatility will decline. These factors will create a favorable environment for financial institutions, reduce risk premiums, and support the continued recovery of financial stock valuations.

Morgan Stanley estimates that the yield on new financial assets in mainland China is expected to recover in the second half of 2026, driven by: tightening loan supply, a renewed focus on risk pricing, and alleviation of deflationary pressures. The bank expects that the net interest margin of mainland banks will bottom out in the first half of the year, with recovery benefiting from delayed deposit repricing, while insurance companies will benefit from improved investment spreads and rapid growth of household financial assets, along with an active capital market, which will support growth in bank fee income and double-digit premium growth for insurance companies. Combined with stable credit costs, the bank estimates that the profitability of mainland banks is expected to recover, while the profitability of insurance companies will maintain healthy growth.

Morgan Stanley continues to be optimistic about Chinese financial stocks, with the insurance sector as the top choice, favoring Ping An Insurance (02318.HK): benefiting from structural growth in household assets and product innovation, it remains the bank's top pick. In terms of domestic bank stocks: Ningbo Bank (002142.SZ) stands out due to its outstanding revenue and profit growth; MINSHENG BANK (01988.HK) has transformation potential. In the brokerage sector: the bank identifies CICC (03908.HK) and Futu (FUTU.US) as top picks.

In addition to the top picks, Morgan Stanley believes that Chinese financial stocks will be "steady performers" this year, with domestic bank stocks including China Construction Bank (00939.HK) and Bank of China (03988.HK) (stable profit growth and a dividend return of 6 cents), and for domestic insurance, it favors China Pacific Insurance (02328.HK) and PICC (01339.HK)