[ET Net News Agency, 9 October 2019] Hong Kong bank stocks have corrected, but Morgan
Stanley said it would continue to avoid the segment. The research house downgraded its
industry view to "cautious" from "in-line".
It noted that bank stocks have moved down in line with HK markets in the last three
months. Morgan expects underperformance ahead. It cut its earnings estimates for 2019 and
beyond.
After the 3Q correction, stocks are trading below long-term averages. But Morgan said
the historical average is probably not an instructive comparable - as seen in other
markets (Korea/China), where ROEs structurally trended down. Such bank stocks have looked
attractive versus their own history for a decade but kept de-rating.
It believes the large HK banks face a similar challenge over the next few years.
Morgan said the economy is slowing fairly quickly in HK, with almost all key indicators
meaningfully down. This will pressure earnings in 2H and beyond, and, if the economy does
not pick up, loan losses would rise. More pressure will come from falling US rates, as
they lead to a fall in HIBOR. HK banks have seen significant NIM expansion since the end
of 2015 (up 30-40bps), and the bulk of this will likely retrace over the next 2-3 years.
HK has licensed eight entities to set up virtual banks. Morgan expects market share gain
by new lenders to be low for the next few years, but the risk is that the incumbents could
cut revenue margins to meet the new competition up front. (KL)