Market Insight | China Merchants Bank rose nearly 4%, leading the gains in domestic banking stocks. Policy support is expected to help improve banks' risk outlook, with valuation increasing supported by fundamentals

Domestic bank stocks led the gains in the morning session. As of the time of publication, China Merchants Bank rose by 3.48% to HKD 35.65, Bank of Communications rose by 3.34% to HKD 6.18, China Construction Bank rose by 2.32% to HKD 5.74, and Industrial and Commercial Bank of China rose by 2.28% to HKD 4.49. In terms of news, Goldman Sachs predicts that the central bank will cut the reserve requirement ratio by 25 basis points in the third quarter and lower interest rates by 10 basis points in the fourth quarter. CICC International, on the other hand, stated that it expects the policy to maintain growth to continue throughout the year. The 25 basis points cut in the reserve requirement ratio in June is still the baseline forecast, but it may be delayed until the third quarter. The probability of an interest rate cut is currently low. CITIC Securities pointed out that the correction in the banking sector last week reflects the market's cautious expectations for the May financial data and real economy. Looking ahead, optimizing the alignment between finance and the real economy will actually enhance the stability of the financial system, making financial support for the real economy more sustainable. We believe that the multi-pronged policy efforts in the previous period will help improve the risk expectations of banks. The valuation of bank stocks is further supported by fundamentals, solidifying the certainty of dividend income