Guotai Haitong released a research report stating that the non-bank financial sector is currently underweight by a total of 3.38 percentage points. Sector valuations have adjusted to historical lows, with the price-to-book ratio of securities firms relative to the overall market at the 0.2 percentile historically. This valuation performance continues to diverge from the improving fundamental trends. The firm is optimistic about the valuation recovery opportunities for the insurance sector in 2026, driven by expectations of rising interest rates. It also favors investment opportunities in fintech and securities firms along the wealth management theme, fueled by household capital entering the market in a low-interest-rate environment. Additionally, it sees potential in the futures industry due to increased elasticity in the diversified financial sector. Key views from Guotai Haitong are as follows.
The market decline in the first quarter led institutional investors to reduce allocations to the securities sector. The report expresses confidence in the current dual improvement of performance and valuation for brokers. The securities sector saw an overall reduction in allocations. In Q1 2026, the allocation proportion of public funds (excluding passive index funds) decreased from 1.08% in Q4 2025 to 0.59%, leaving the sector underweight by 2.32 percentage points. The Wind All Share Index fell by 1.15% in the first quarter, and market risk appetite significantly declined amid overseas market volatility, leading to reduced allocations to brokers. For individual stocks, the allocation market value proportion for CITIC Securities decreased from 0.3132% to 0.1675%. The allocation market value proportion for Huatai Securities dropped from 0.2489% to 0.0709%. Current sector valuations have adjusted to historical bottoms. The price-to-book ratio of securities firms relative to the overall market is at a historical 0.2 percentile, a valuation performance that persistently diverges from improving fundamental trends. The report is optimistic about the logic of simultaneous earnings and valuation increases for the brokerage sector currently and recommends focusing on leading brokers with core advantages in capital-intensive businesses and wealth management.
The allocation proportion for the insurance sector declined, but the report is positive on valuation recovery opportunities for insurance stocks against the backdrop of rising interest rates. The insurance sector's allocation proportion decreased from 2.13% to 1.41%, resulting in an underweight position of 0.64 percentage points. The insurance index fell by 21.14% in the first quarter. For individual stocks, the allocation market value proportion for China Life Insurance decreased from 0.084% to 0.038%. The allocation market value proportion for China Pacific Insurance dropped from 0.422% to 0.274%. The allocation market value proportion for Ping An of China declined from 1.449% to 0.991%. Expected interest rate increases and optimized asset allocation are projected to drive improvements on the investment side, supporting a valuation recovery for insurance stocks.
The allocation proportion for the diversified finance and fintech sector increased, with dividend stocks receiving additional allocations. Emphasis is placed on fintech opportunities driven by rising wealth management demand. In Q1, the allocation proportion of public funds (excluding passive index funds) to the diversified finance and fintech sector rose from 0.145% to 0.165%, though the sector remains underweight by 0.42 percentage points. For individual stocks, Bohai Leasing and Jiangsu Financial Leasing received increased allocations, with their allocation market value proportions rising from 0.0336% to 0.0605% and from 0.0250% to 0.0442%, respectively. The allocation market value proportion for Tonghuashun declined from 0.0668% to 0.0416%. Increased household allocation to equities and growing wealth management demand are expected to boost earnings improvements for fintech companies. Furthermore, against the backdrop of heightened commodity volatility, the report is optimistic about the profit elasticity of the futures industry.
Risk warnings include significant fluctuations in the equity market; household allocations to equity assets falling short of expectations; and concerns over life insurers' spread losses easing less than anticipated.
Comments