Morgan Stanley: Favors Standard Chartered (02888) among Hong Kong bank stocks, downgrades BOC Hong Kong (02388) and Hang Seng Bank (00011) to "hold" rating.

Morgan Stanley released a research report stating that banks in China, Hong Kong, and Singapore have benefited from rising interest rates and performed well. However, the interest rate cycle has turned, and it is expected that non-banking businesses, especially wealth management, will support equity returns in the future. The bank believes that banks in China, Hong Kong, and Singapore have strong cash generation capabilities, making them defensive. In Hong Kong bank stocks, the bank prefers STANCHART (02888) and has downgraded BOC HONG KONG (02388) and HANG SENG BANK (00011) ratings from "market perform" to "underweight." The target price for BOC HONG KONG has been raised from 100.4 Hong Kong dollars to 108.5 Hong Kong dollars, while the target price for HANG SENG BANK has been lowered from 97.1 Hong Kong dollars to 93 Hong Kong dollars. The bank has raised the target price for HSBC HOLDINGS (00005) from 76.8 Hong Kong dollars to 84.6 Hong Kong dollars and maintains a "overweight" rating. The bank believes that banks' hedging measures have reduced sensitivity to falling interest rates, with a projected compound annual growth rate of -2% to +2% for net interest income from 2024 to 2026. However, it is expected that non-interest income, especially wealth management fees, will offset these pressures. Morgan Stanley estimates that wealth management fees in the banking sector grew by as much as 40% year-on-year last year. Their model indicates that wealth management revenues should continue to grow at a compound annual rate of 17% over the next two years, offsetting the decline in net interest income this year. The bank expects DBS and Standard Chartered to be the biggest beneficiaries of wealth income growth, as both banks derive 20 to 25% of their income from affluent client segments.