We See Further Financial Outperformance in 2H26

Research evidence excerpt

We See Further Financial Outperformance in 2H26

Idea

July 26, 2026 10:23 PM GMT

Morgan Stanley Asia Limited+MChina Financials | Asia Pacific Richard Xu, CFA

Equity Analyst

We See Further Financial Richard.Xu@morganstanley.comChiyao Huang +852 2848-6729

Chiyao.Huang@morganstanley.com +852 3963-4624

Outperformance in 2H26 Beryl Yang

Research Associate

Beryl.Yang@morganstanley.com +852 3963-2224

We continue to see broad-based financial outperformance in Rick Zhao

2H26 and further highlight major catalysts in the near and long EquityRick.Zhao@morganstanley.comAnalyst +852 2239-7033

term. We expect further valuation re-rating in a positive Chenqian Liu

development loop following recent recovery. ResearchChenqian.Liu@morganstanley.comAssociate +852 3963-0359

The recent re-rating supports our view that China financials are more steady

performers in a positive development loop. Over the past two weeks, A-share and

H-share banks under our coverage picked up 4.7% and 6.7% (vs. -0.9% for CSI300

and +4.3% for HSI), respectively, following a muted performance in A shares in 1H26.

We believe this recovery reflects not only their attractive dividend yields, but also China Financials

growing recognition of a more stable profitability and ROE outlook. We believe this Asia Pacific

Industry View Attractive

is the beginning of more broad-based outperformance in 2H26 due to our

Related reports:

expectation of: 1) more favorable flow trends due to the notable abate of "national

China Financials: Further de-leveraging or

team" selling; 2) abating macro concerns as government bond issuance picked up

positive development loop? How to invest? (9

following de-leveraging in 2Q26; and 3) strong earnings momentum across banks,

Jul 2026)

insurance and brokers.