UBS Group released a report stating that in the past month, the MSCI Chinese Banking Index has fallen by 4.6%, underperforming the MSCI Chinese Index (which fell 2.6%). Among the H-shares covered by the bank, Minsheng Bank (01988.HK) performed the best (down 0.7%), while CM Bank (03968.HK) performed poorly (down 10.5%). Among the northbound holdings of the Hong Kong Stock Connect (Baoshui), they accounted for 28.2% of the free float of H-shares of Chinese banks, increasing by 48 basis points monthly. Agricultural Bank of China (01288.HK) saw the largest increase in holdings value (up 7.2%), while Bank of Communications (03328.HK) saw the largest decrease in holdings (down 4.4%).

The bank believes that in the absence of strong macroeconomic stimulus and with the continued weakness in economic prospects and increasing geopolitical uncertainty, there is an estimated range of fluctuations in China mainland banking stocks. On the positive side, the dividend yield of large-cap Chinese banks' H-shares is relatively attractive at 8%. However, the potential downward risk to dividend per share of China mainland banking stocks due to potential mortgage rate cuts. The bank believes that Bank of China (00939.HK), China Construction Bank (03988.HK), Agricultural Bank of China, and Bank of Communications (00998.HK) have defensive qualities (target prices can be found in another table).