Morgan Stanley Fund said in a report that against the backdrop of China's development mode transition, Chinese bank stocks are expected to outperform the market for the fourth consecutive year in 2025. With the general decrease in return rates of other investment products, the more stable profits and dividends of the banking industry may attract more funds to flow into Chinese bank stocks. Morgan Stanley Fund believes that China's shift from supporting growth to risk control will continue to be effective. In a more cautious development environment in China, this will help major banks create sustainable shareholder returns, and the value and dividends of the banking industry are expected to continue to perform well. China has shifted its focus from supporting growth to risk control since 2021. Although there were initial market doubts, the transition has proven to be sustainable and has driven Chinese bank stocks to outperform the market for three consecutive years (from 2022 to early 2024). As of July 30, 2024, the average total return of A-share and H-share bank stocks covered by Morgan Stanley Fund over the past three years is about 35%, while the Shanghai and Shenzhen 300 Index and Hang Seng Index have respectively declined by about 25% and 28%. Morgan Stanley Fund stated that under the new monetary policy framework, it is expected that the net interest margin will gradually stabilize. There may be slight downward pressure on the net interest margin in 2025, but it is expected to rebound in 2026, which is likely to drive the gradual recovery of bank profits. Furthermore, policymakers have strengthened their focus on long-term risks in recent months and continuously solidified new risk control policies, which will help banks control long-term credit costs. Morgan Stanley Fund believes that the stabilization of the net interest margin and continuous risk control will enhance market confidence in the future profitability and dividends of the banking industry. It is expected that the average return on equity (ROE) of banks will stabilize at around 10% in 2025 and 2026, while banks can maintain stable profit growth.