Photographer: Chan Long Hei / Bloomberg
Photographer: Chan Long Hei / Bloomberg
Hong Kong investors are finding shelter in the shares of the city’s banks, from Chinese telecommunications companies to Tencent Holdings Ltd. becomes toxic.
Financial sector stocks outperformed all other sectors on the Hang Seng benchmark index on Thursday. HSBC Holdings Plc was the largest contributor to the index, with a 4.6% gain, after its 10% rise in London the day before. Standard Chartered Plc increased by 6.9%. On the other hand, Alibaba Group Holding Ltd. fell 3.9% and Tencent fell 4.7%, after reports that the Trump administration may bar investments in two of the most valuable companies in the world.
“People are transferring their money, there are so many problems and uncertainties for growing stocks right now,” said Dickie Wong, executive director of research at Kingston Securities Ltd, adding that banks currently offer a refuge from recent regulatory and political tensions.
One factor behind recent HSBC and other gains is a jump in US sovereign note yield, with the 10-year rate this week rising to the highest level since March. Financial companies have suffered from low interest rates and the quantitative easing of central banks worldwide, suppressing bond yields at virtually all maturities. Lending tends to become more profitable for banks when yield curves increase or yields on longer-term bonds become higher compared to those on shorter-term debt.
“The increasingly steep yield curve creates a good environment for banks like HSBC,” said Alex Wong, director of asset management at Ample Capital Ltd. “After the recent hike, there is still room for HSBC to rise further, since its share price was too low and investors are now betting on economic recovery. “
HSBC’s net interest margin – a key measure of loan profitability – was just 1.2% in the third quarter of last year, down 13 basis points from the previous period. Revenue from this measure fell 6%, according to the October earnings update. The bank said at the time that prolonged low interest rates were likely to “have a significant impact” on its net interest income.
Stock sentiment is also improving as investors anticipate the repurchase of shares this year, said Wong of Ample Capital. HSBC could spend up to $ 3.5 billion between this year and the next, according to a recent survey Goldman Sachs note.
HSBC has been up 54% in Hong Kong since reaching its 25-year low in September. Recovery follows months of uncertainty for the creditor as investors worried about how increasing regulatory, economic and geopolitical pressures would affect it. Since then, the hope that a change in the US presidency will ease tensions between Washington and Beijing, and signs that British regulators will soften their position on the dividend ban, have helped fuel optimism.
– With the assistance of Tian Chen and Sofia Horta e Costa
(Updates with closing prices)