Zheshang: Will insurance funds further increase their allocation to bank stocks?

Zheshang released a research report stating that insurance funds increasing their holdings in bank stocks is in line with the long-term trend. It is expected that by 2026 and 2027, approximately 400 billion yuan of insurance funds will increase their holdings in bank stocks, with the momentum for allocation starting in Q2 of 2026. The future outlook for insurance funds increasing their holdings in banks remains positive, and the absolute return opportunities for bank stocks are favored. The key recommended "New Energy Combination" includes Bank Of Nanjing (601009.SH), Shanghai Pudong Development Bank (600000.SH), Bank of Shanghai (601229.SH), Chongqing Rural Commercial Bank (601077.SH), and Industrial and Commercial Bank of China (601398.SH). The main points from Zheshang are as follows: Why are insurance funds increasing their holdings in bank stocks? The bank believes that insurance funds increasing their holdings in bank stocks have two main reasons: (1) Internal DRIVE, bank stocks are a long-term choice for insurance funds in asset allocation. Insurance fund allocation needs to consider cost coverage, term matching, and capital constraints. Bank stocks have high dividends, long-term stable operations, and most bank stocks have better capital utilization than other stocks, which is suitable for the needs of insurance fund allocation. (2) External catalysts, policy guidance and rule changes open up space for increasing holdings in bank stocks. Starting from 2022, various policies encourage the entry of various long-term funds including insurance funds into the market. The policy content mainly includes broadening the investment scope of insurance funds, reducing the risk factors of stock investments by insurance funds to increase equity investment space, and guiding long-term assessments. Considering that non-listed insurance companies will implement new rules in 2026, it is expected that non-listed insurance companies will establish new OCI accounts; at the same time, considering that the new regulations on insurance asset-liability management increase the assessment of stable income covering liability costs, it is expected that insurance companies will gradually increase their allocation of high-dividend assets. How are insurance funds increasing their holdings in bank stocks? Insurance funds mainly increase their holdings in bank stocks through secondary market shareholding. In recent years, some insurance funds have participated in bank stock investments through agreement transfers and convertible bonds. (1) The accounting methods for insurance funds investing in bank stocks include TPL, OCI, and long stock investments. These three accounting methods focus on factors such as spread, dividends, and equity return rate. (2) The forms of insurance funds increasing their holdings in bank stocks include shareholding, agreement transfers, participation in non-public offerings, participation in IPOs, and convertible bond conversions. Based on the practices of the past 5 years, insurance funds primarily increase their holdings in bank stocks through secondary market shareholding. Major insurance companies mainly hold shares in large banks listed in Hong Kong, while other insurance companies mainly hold shares in small and medium-sized banks. In recent years, some insurance funds have also participated in bank stock investments through agreement transfers and convertible bond conversions, while bank non-public offerings and IPOs are currently restricted. What is the space for insurance funds to increase their holdings in bank stocks? (1) Prospects for new equity space: considering the inflow of new premiums into the market and the allocation of existing insurance funds to equity assets, the bank predicts that the amount of insurance funds flowing into the stock market in 2026 and 2027 will be 1.34 trillion yuan and 1.41 trillion yuan, respectively. (2) Prospects for bank allocation space: considering the styles of different accounts, the bank estimates that 197.7 billion and 207.6 billion yuan will be allocated to bank stocks in 2026 and 2027, respectively. (3) Prospects for individual bank stock holdings: The bank predicts that high-quality regional city rural commercial banks will become the focus of insurance funds' increased allocation, considering mainly: The strong fundamentals of high-quality regional city rural commercial banks; Major insurance companies have started to gradually recognize high-quality regional city commercial banks since 2025, and some have entered the top ten list of banks; At the same time, small and medium-sized insurance companies are also looking for opportunities to long-term invest in small and medium-sized banks. In addition, it is expected that large banks listed in Hong Kong and major listed banks will continue to receive increased allocations from insurance funds, mainly considering that insurance funds represented by Ping An still have room for holding positions in some major banks and in China Merchants Bank within the 5% upper limit. (4) Tracking the nodes of insurance funds allocation: The bank believes that the current allocation of insurance funds to the bank sector is in a reasonable range. They will focus on the following changes in the future: In terms of policies, considering that the insurance company asset-liability management measures will be implemented on July 1, 2026, the implementation of this measure may result in insurance funds increasing their allocations to high dividend stocks in Q2 and the second half of the year, benefiting bank stocks. In terms of premiums, they will pay attention to the sustainability of future high premium growth. In terms of investment cost-effectiveness, they will compare the valuations of banks with various assets. Bank stocks have a high valuation and good investment value in terms of dividend yield, with the latest Shanghai Banking Index PB valuation standing at 0.51x, in the 44th percentile of the past 5 years; and the Shanghai Banking Index (TTM) dividend yield at 4.7%. Key events include paying attention to related announcements such as insurance companies' shareholding and shareholder qualification approvals, which may indicate future actions of increased allocations by insurance funds. Risk warning: Macro-economic slowdown, significant non-performing assets outbreak, deviation between estimates and actual figures.