GF SEC: With the Q3 earnings window approaching and valuations low, opportunities in the non-bank financial sector are worth watching.

GF SEC released a research report stating that Hong Kong capital market reforms continue to optimize across three dimensions: post-listing supervision, listing regime, and settlement mechanisms, with HKEX planning to advance T+1 settlement in the second half of 2028. In the medium to long term, a downward trajectory for liability costs has been established, the logic of improving the spread between interest and expense continues to strengthen, and the allocation value of the insurance sector is highlighted. In the short term, expectations for Q3 earnings reports are weighing on the sector, but current low valuations combined with low institutional holdings provide room for valuation recovery. We recommend watching allocation opportunities in the brokerage and insurance sectors. GF SEC's main views are as follows: Securities: Hong Kong capital market reforms continue to advance, with multi-dimensional optimization of post-listing supervision, listing regime, and settlement mechanisms This week, the average daily turnover of the Shanghai and Shenzhen markets was RMB 1.58 trillion (down 12.7% WoW), and the margin financing and securities lending balance in Shanghai and Shenzhen was RMB 2.50 trillion (down 2.8% WoW). On the policy front, on October 12, the Hong Kong Securities and Futures Commission published the consultation conclusions on amendments to the Securities and Futures (Stock Market Listing) Rules, proposing to allow conditions to be imposed on listing applicants that can continue to apply after listing, and to impose post-listing conditions on listed issuers as an alternative to immediate trading suspension, while simplifying the resumption of trading procedures. The relevant amendments are expected to take effect in Q1 2027. In addition, on September 21, HKEX published the consultation paper for Phase 2 of the Listing Regime Competitiveness Review, proposing to optimize rules related to discloseable transactions, connected transactions, and spin-off listings, with the consultation period ending on November 30; on October 16, HKEX further published the consultation conclusions and implementation roadmap on shortening the settlement cycle for the Hong Kong cash equity market, targeting the advancement of T+1 settlement in the second half of 2028. The above measures are expected to enhance the flexibility of the listing regime, improve post-listing supervision, and promote the upgrading of market settlement infrastructure. The relevant changes may affect brokerages' IPO and listed company services, financial advisory business, as well as brokerage clearing systems and operational processes. We recommend watching CITIC SEC (AH), CMSC (AH), CICC (H), Huatai (AH), Guotai Haitong (AH), Caitong, Orient, etc. Insurance: The market continues to adjust, and with the Q3 earnings window approaching, insurers' short-term performance may come under pressure from market volatility. We recommend watching allocation opportunities in the sector as earnings pressure is released According to iFind data, as of October 16, the CITIC II Insurance Index fell 2.94% for the week, outperforming the CSI 300 Index (down 3.40% this week). This week, sectors represented by technology continued to adjust, and the insurance sector came under short-term pressure due to factors such as Q3 earnings expectations. Considering the sector's current low valuation and prominent safe-haven attributes, combined with institutional holdings still at low levels, the sector is expected to have some room for valuation recovery amid continued market volatility. We recommend watching opportunities in the sector. On the policy front, regulators recently issued the "Notice on Carrying Out Investigation and Rectification of 'Quick-Return' Products" to life insurance companies, mainly targeting the "long-term insurance sold as short-term" risk of products such as "pay 3, cover 6" (3-year premium payment, 6-year insurance period), requiring that in principle no new products with cash value at the end of the third policy year exceeding premiums paid may be filed, and existing similar products should in principle be proactively suspended, to curb hidden risks from deliberately suppressed expense assumptions, inconsistency between filed and executed rates, and expense spread losses. The industry is currently at a critical juncture in preparations for the 2027 "good start" campaign. To "cool down" scale-chasing behavior that uses short-term payback as a selling point, this is expected to guide channels from a scale-oriented approach toward long-term regular premium products, participating insurance, and protection-type products. Looking ahead, with the Q3 earnings disclosure window approaching, considering the overall adjustment in the equity market in Q3, insurers' investment returns may be somewhat dragged down, and profit performance may come under pressure. However, the release of earnings pressure may instead provide a better allocation timing for the sector the market's cautious expectations for Q3 earnings have already been partly priced in during the pre-holiday adjustment. After the negative factors land, the sector's low valuation will further highlight its margin of safety; in addition, on the liability side, listed insurers are expected to gradually launch their "good start" campaigns. With deposit rates remaining low and household savings trending toward long-term savings products such as participating insurance, new policy sales are expected to provide continued catalysts for the sector. In the medium to long term, a downward trajectory for liability costs has been established, the logic of improving the spread between interest and expense continues to strengthen, and the sector's allocation value is highlighted. The sector's current valuation remains at a low level. For individual stocks, we recommend watching: China Life Insurance (AH), Ping An Insurance (AH), New China Life Insurance (AH), PICC P&C (H), CHINA TAIPING (H), The People's Insurance (A)/PICC GROUP (H), China Pacific Insurance (AH). Risk warnings: Significant volatility in the capital market, intensifying industry competition, changes in industry policies, etc.