According to the Zhitong Finance and Economics APP, China Galaxy Securities released a research report stating that fiscal and monetary policies are strengthening countercyclical adjustments, the combination of incremental policies is being reinforced to enhance effectiveness, and promoting economic recovery. Currently, the real estate policy 'combination punch' is increasing, supporting short-term crediting, effectively accelerating the destocking of commercial housing, revitalizing existing land resources, improving liquidity for real estate enterprises, combined with the increase in localized debts to enhance the quality of bank assets. The implementation of reserve requirement cuts, interest rate reductions, deposit rates, and existing housing loan rate reductions are being rolled out affecting bank interest spreads neutrally, and attention should be paid to the subsequent policy implementation effects.

China Galaxy Securities' main points are as follows:

Signs of economic recovery in September: China's GDP grew by 4.6% year-on-year in the third quarter, slightly slower than the second quarter. In September, industrial added value increased by 5.4% year-on-year, rebounding from August and the same period last year. The trade-in of old for new promotes the recovery of domestic demand, driving marginal improvements in manufacturing. In September, fixed asset investment increased by 3.33% year-on-year, better than the previous month and the same period last year, with improvements in the growth rate of manufacturing and real estate investments; total retail sales of consumer goods increased by 3.2% year-on-year, higher than August: export volume increased by 2.4% year-on-year, lower than the previous month; PMI was 49.8%, up 0.8 percentage points from August.

Enhancing the effectiveness of incremental policies to help economic recovery: The National Development and Reform Commission, the Ministry of Finance, and the Ministry of Housing and Urban-Rural Development respectively held press conferences this month, announcing a package of incremental policies to continue stabilizing growth, expanding domestic demand, and addressing risks by boosting consumer confidence. Early this year, 100 billion yuan of central budget investment plans for next year and a list of 100 billion yuan worth of major projects were released, accelerating government investment to support short-term crediting. Special treasury bonds will supplement the core Tier 1 capital of large state-owned banks, and it is expected to be capitalized through market-oriented means, with a capital replenishment scale of 1-1.5 trillion, leveraging incremental crediting of 10.5-15.2 trillion, focusing on key areas such as the implementation of the 'five major articles.'

Intensifying localized debt efforts, intending to significantly increase the debt limit at once to replace hidden debts, clearing local risks in the medium to long term, and improving the overall good prospects for banks. Using special bonds, special funds, tax incentives, and other policies to promote the revitalization of existing real estate stocks and stabilize the property market; by the end of the year, the scale of white-listed real estate loans will increase to 4 trillion; through means such as monetization, implementing an additional 1 million units of urban villages and urban dilapidated house renovations, expecting to stimulate incremental bank loans of 10-20 billion yuan. Establishing a mechanism for coordinating financing for small, medium, and micro enterprises, alleviating corporate financing difficulties. Basic adjustments to existing housing loan rates have been completed, improvement in real estate enterprise liquidity is expected, which is positive for the quality of bank assets. Both the listing deposit rate and LPR have been reduced by 25 basis points, with a neutral overall impact on bank interest spreads.

Banks' heavy holdings ratio have slightly increased, dividend assets are still favored: Public funds released the Q4 202403 heavy position data, with an underweight ratio for the banking sector at 8.46%, a decrease of 0.69 percentage points compared to the previous period. The heavy position ratio is 2.79%, up by 0.02 percentage points from the previous quarter, ranking 12th in the entire industry, up by 1 compared to the previous quarter. The proportion of shares held by commercial banks and rural commercial banks increased by 0.04 and 0.01 percentage points respectively, while that of state-owned banks and city commercial banks decreased. Looking at individual stocks, the high dividend yield strategy is still favored, with increased attention to some commercial banks and regional banks, expecting an impact from the policy turning point at the end of September.

Investment recommendation: Continue to be bullish on the bank sector for allocation value, maintaining a 'recommended' rating. In terms of individual stocks, recommend industrial and commercial bank of china (601398.SH), china construction bank corporation (601939.SH), postal savings bank of china (601658.SH), bank of jiangsu (600919.SH), jiangsu changshu rural commercial bank (601128.SH).

Risk warning: Economic growth rate lower than expected, deterioration of asset quality; Continuous decline in interest rates, net interest margin under pressure.