The Covid pandemic has left stocks in the Chinese banking sector languishing at record lows, according to a report from the brokerage arm of CITIC Group.
The report from CITIC Securities said that bank stocks have been especially hard hit by weak demand for loans amidst renewed rounds of Covid restrictions in China in 2022.
“In 2022, because credit demand trended weak, interest rate spreads declined and risk expectations increased, Chinese banking sector valuations hit new historic lows,” the report said.
CITIC Securities analysts expect these record lows to favour sharp share price gains next year, particularly following the winding back of China’s zero Covid policy.
“In 2023, the above three fundamentals are expected to see marginal improvement, while there will also be a turnaround in medium and long-term asset quality.
“There is huge room for systemic increase in sector valuations, and we recommend that investors make active allocations.”