CITIC Securities: Strengthening monetary policy boosts demand, target valuations continue to rise

The Zhitong Finance App learned that CITIC Securities released a research report saying that expectations of RMB exchange rate appreciation are heating up recently, which is beneficial to the performance of RMB equity assets. The central bank will use policy tools more flexibly in the next stage, and focus on domestic demand targets. Looking ahead to 2026, stable macro-financial conditions point to a stable banking operating environment. Bank interest spreads are expected to bottom out, risks in the real sector are being mitigated, and revenue and profits will recover. The banking industry's absolute return logic comes from valuation repairs brought about by bank systemic risk reassessments while stabilizing equity return characteristics to drive capital inflows into the sector. It is expected that in 2026, the banking sector will continue to reflect the direction of increasing valuations.

CITIC Securities's main views are as follows:

Incidents

On December 24, 2025, the People's Bank of China announced the minutes of the fourth quarter Monetary Policy Committee's regular meeting.

The goal of strengthening monetary policy to boost demand

This regular meeting removed statements about Xiaowei and real estate from the third quarter, and also removed statements about increasing monetary and credit investment and preventing capital idling. Furthermore, this regular meeting continued the central economic work conference's emphasis on domestic demand. It not only emphasized the contradiction of “strong supply and weak demand” in the current situation, placed “expanding domestic demand” first in the formulation of structural monetary policy instruments, but also changed the goal of “prices at a reasonable level” to “reasonable price recovery” in the current situation.

The use of monetary policy instruments in the next stage may be more flexible, and there is limited room for interest rate policy adjustments

This regular meeting changed the “driving down the cost of comprehensive social financing” expressed in the third quarter to “promoting the low operation of comprehensive social financing costs,” changing “suggestions to strengthen monetary policy regulation” to “leveraging the integrated effects of incremental policies and stock policies,” and “grasping the strength and pace of policy implementation” to “grasping the intensity, pace, and timing of policy implementation.” Furthermore, this regular meeting did not repeat the Central Economic Work Conference's “interest rate reduction” statement in early December, but instead focused on “comprehensive application of various tools.” According to the analysis, in the next stage, the central bank will strengthen the comprehensive application of policy tools, pay attention to the timing of policy implementation, and be more cautious about implementing policies such as interest rates.

The market rebounded last week, and the performance of bank stocks was stable. Looking ahead to the next stage, there is significant room for recovery

Last week, the market continued its structured market with policy and financial support, and bank stocks performed relatively lackluster. On the A-share side, the Shanghai and Shenzhen 300 Index, the Shanghai Stock Exchange Index, and the Wind All A Index rebounded 1.95%/1.88%/3.53%/2.78% respectively last week, while the China CITIC Bank Stock Index (CI005021.WI) fell slightly by 0.89% during the same period, outperforming the market; for H shares, the Hang Seng Index rose 0.50% and the Hang Seng Technology Index rose 1.11% during the same period. The bank believes that bank stocks are also expected to benefit from the recent appreciation of the RMB exchange rate, combined with the positive market for RMB equity assets in the historical RMB appreciation cycle. Furthermore, it is expected that allocative capital will enter the market at the beginning of the year, which will help catalyze bank stock performance, and recommend that institutions actively plan to reap definitive returns.

Risk factors: Macroeconomic growth declined sharply; bank asset quality deteriorated beyond expectations; regulatory and industry policies changed beyond expectations.