Photographer: Chan Long Hei / Bloomberg
Photographer: Chan Long Hei / Bloomberg
Hong Kong investors are home to the city’s banking stocks, from Chinese telecommunications companies to Tencent Holdings Ltd. becomes poisonous.
Financial stocks outperformed all other sectors on the Hang Seng Index benchmark on Thursday. HSBC Holdings Plc was the largest contributor to the index with a gain of 4.6% after rallying 10% in London the day before. Standard Chartered Plc rose 6.9%. On the other hand, Alibaba Group Holding Ltd. declined. 3.9% and Tencent were down 4.7%, after reports that the Trump administration has released the investments in two of the world’s most valuable companies.
“People are shifting their money, there are so many problems and uncertainties for growth stocks right now,” said Dickie Wong, executive director of research at Kingston Securities Ltd, adding that banks are currently providing a haven from recent regulatory and political tensions.
One factor behind recent gains for HSBC and others is an increase in US Treasury yields, with the 10-year yield coming this week climbing to the highest level since March. Financial companies have suffered as low interest rates and quantitative easing by central banks around the world suppressed bond yields across virtually all maturities. Lending tends to become more profitable for banks when yield curves get steeper or longer-term bond yields exceed those of short-term debt.
“The steeper yield curve is creating a good environment for banks like HSBC,” said Alex Wong, director of asset management at Ample Capital Ltd. “After the recent rally, there is still some room for HSBC to rise further as the stock price was way too high. Low and investors are now betting on economic recovery.”
HSBC’s net interest margin – an important measure of loan profitability – was just 1.2% in the third quarter of last year, 13 basis points lower than in the previous period. Income from that measure fell 6%, according to the October earnings update. The bank said at the time that long-term low interest rates would likely have “a significant impact” on its net interest income.
Sentiment toward stocks also improved as investors anticipate share buybacks this year, Ample Capital’s Wong said. HSBC could spend as much as $ 3.5 billion between this year and next year, according to a recent study note from Goldman Sachs.
HSBC is up 54% in Hong Kong since it hit its 25-year low in September. The rebound follows months of uncertainty for the lender as investors worried about how increasing regulatory, economic and geopolitical pressures would affect this. Since then, hopes that a change in the US Presidency will ease tensions between Washington and Beijing, and signs that UK regulators will soften their stance on a dividend ban have fueled optimism.
– With the help of Tian Chen and Sofia Horta e Costa
(Updates with closing prices)