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<Research>CICC: Impact of 'Hawkish Rate Cuts' in Europe/US on Profits of HK Banks Controllable; Top Pick HSBC for 6-12 Mth Horizon
Recommend 37 Positive 49 Negative 24 |
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CICC wrote in a report that it maintained HSBC HOLDINGS (00005.HK) as its top pick for a 6-12 months horizon, expecting it to continue delivering solid results and high shareholder returns in an environment where interest rates stay higher for longer, while its current valuation is still not too high. In the short term, STANCHART (02888.HK) may have stronger positive support, as the broker expected its 2Q results to be stronger, mainly from maintaining revenue growth momentum. On the local banks front, CICC noted that pressure on the local economy and domestic housing exposure has persisted. Against the backdrop of the US Fed's delayed interest rate cut, the Hong Kong economy will remain under pressure, with no significant improvement in recent macro data. Thus, CICC maintained its view that international banks are better than local banks. The report mentions that the European and US central banks are now more cautious in their judgement of the inflation outlook and guidance on the path of interest rate cuts, believing that even if the interest rate cut cycle starts, the interest rate pivot may still be higher than the pre-pandemic level, and that high interest rates may become the new normal. CICC commented that the impact of "hawkish rate cuts" in Europe and the US on the profitability of Hong Kong banks is manageable. According to market forecasts, the expected average interest rate level of USD/GBP/EUR in 2024 would decline 14bps, 19bps and 44bps respectively when compared to the end of 2023, with a further drop of 91bps, 112bps and 106bps respectively in 2025. Under this scenario, CICC estimated that profits before tax of HSBC and STANCHART this year will be dragged down by 1.8% and 1.9%, and that of next year will be dragged down by 9.7% and 12.3%. However, considering that the interest rate cut is conducive to the revival of credit demand, improvement of deposit structure and growth of non-interest income, the downward pressure on interest income is expected to be hedged to a certain extent. CICC expected HSBC's adjusted ROTE to remain at 14-15% and STANCHART's adjusted ROTE to remain at 11-12% from 2024 to 2025. AAStocks Financial News |
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