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Hong Kong Banks Slump After Morgan Stanley Downgrades Outlook

By Bloomberg 9 October 2019
Caption
Pro-democracy protesters wave their cell phones as they take part in a rally at Edinburg Place on September 27, 2019 in Hong Kong, China. Pro-democracy protesters have entered their fourth month of demonstrations across Hong Kong as the Chinese-rule territory braces for the 70th anniversary of the founding of the People's Republic of China on October 1 and the anti-government movement continue its call for Chief Executive Carrie Lam to meet their remaining demands, including an independent inquiry into police brutality, the retraction of the word riot to describe the rallies, and genuine universal suffrage. (Photo by Anthony Kwan/Getty Images)

Hong Kong banks declined after Morgan Stanley cut the sector’s outlook, saying that the stocks will underperform as a slowing economy and falling rates hurt profitability.

Bank of East Asia Ltd. slumped 3.3% as of 11:03 a.m. local time while Hang Seng Bank Ltd. dropped 3.2%. Morgan Stanley reduced its recommendation on the industry to cautious from in-line. It cut Hang Seng Bank and HSBC Holdings Plc to underweight.

“We would continue to avoid the segment,“ analysts including Anil Agarwal wrote in a note. “The economy is slowing fairly quickly in Hong Kong, with almost all key indicators meaningfully down year on year. This will pressure earnings in the second half and beyond.”

Falling local interest rates will further cloud the outlook, the brokerage said.

While banks are trading below long-term averages, they may continue to derate, similar to what’s happened in other markets including China and South Korea, according to Morgan Stanley. Local lenders may also face competition in the future from virtual banks, it said.

Standard Chartered Plc slid 1.8% in Hong Kong, while HSBC dipped 0.4%.

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