Bank stocks are under pressure before the Fed discusses interest rates

Financial News

Written by: Gu Meiyi

2021-06-16 08:00

Last update date: 2021-06-16 08:00

The U.S. Federal Reserve held an interest rate meeting for two consecutive days. Although the latest inflation (CPI) data released by the U.S. last week rose to 5%, a 13-year high, the current trend of U.S. stocks and bonds shows that U.S. stocks hit new highs and U.S. bonds Interest rates fell below 1.5% and the U.S. exchange rate index hovered around 90. The market expects that the Fed will stick to the low interest rate environment and buy bonds for a longer period of time.

The flooding in the United States has a negative impact on the interest rate differential of Hong Kong's banking industry.

According to KPMG statistics, the net interest margin of the top ten banks in Hong Kong is 1.38%, which has narrowed by 33 basis points year-on-year.

Before the US interest rate meeting, local bank stocks continued to weaken. Taking into account Tuesday's (15th) BOCHK share price fell three days in a row, seeing a two-month low; Bank of East Asia's share price even hit a seven-month low.

Before the Fed's interest rate talks, local bank stocks fell, and the Bank of East Asia stock price hit a seven-month low

The Federal Reserve will announce the results of the interest rate discussion at 2 a.m. on Thursday, Hong Kong time. The market is unanimously expected to maintain monetary policy unchanged. Observe the current trends in the US stock, bond and foreign exchange markets. The S&P 500 index and the Nasdaq, which is dominated by technology stocks, set new highs , The 10-year bond yield fell below 1.5%, hovering at a 3-month low, causing the U.S. dollar index to rise and fall within a narrow range of 90. This clearly reflects the market’s belief that inflation has not affected the Fed’s adherence to monetary easing, and it is predicted that the Fed will continue to release water. Continue to buy debt for a while.

Investment Bank Pays Attention to Interest Rate "Dot Plot", Damo expected to support low-interest rate reduction officials

However, the market pays close attention to the "dot plot" that will be announced after the interest rate negotiation. The chart reflects the Fed officials' forecast of interest rate trends and will indicate the pace of interest rate hikes in the next two years.

Morgan Stanley expects the Fed's dot matrix chart to show fewer officials supporting continued low interest rates (Federal Reserve website)

According to the "dot chart" in March, among the 18 Fed officials, most (that is, 11) officials believe that the current low interest rate will continue.

However, the latest Morgan Stanley report predicts that based on recent economic data, it is believed that the Fed’s inflation forecast will be adjusted upwards. The Fed’s dot plot may show that the number of officials who support continued low interest rates has decreased, resulting in a 9-to-9 vote situation. It reflects that there are differences within the bureau on raising interest rates in 2023.

The United States will raise interest rates as early as 2023. The first impact on the Hong Kong market is the performance of the banking industry's interest rate differentials, which is a key profit indicator for the bank's loan interest collection business.

KPMG just released a report on the local banking industry last day (15th). It mentioned that low interest rates have put pressure on the interest margins and profits of local banks.

The bank pointed out that in 2020, the total assets of the Hong Kong banking industry increased by 8.8% year-on-year to 22.9 trillion yuan, loans and advances increased by 3.4%, but profitability declined, and all licensed banks were accruing impairment losses. Operating profit before preparation fell 19.3% year-on-year to 232 billion yuan.

According to a KPMG survey, the net interest margin of the top ten banks in Hong Kong last year was 1.38%, which was narrowed by 33 basis points year-on-year.

(VCG)

Interest rates do not rise but fall instead of the top ten Hong Kong-bank interest rate differentials under pressure by 33 pips in the first quarter

KPMG China Hong Kong Financial Services Partner Paul McSheaffrey pointed out that according to the bank's statistics, the net interest margin of the top ten banks in Hong Kong last year was 1.38%, which was narrowed by 33 basis points year-on-year.

The reason behind the recent weakness in the share prices of Hong Kong banking stocks is also related to the trend of benchmark interest rates.

In an interview, Guo Jiayao, vice president of Zhengrong's financial business department, said that the recent remarks made by Fed officials are still insisting that high inflation is only temporary, and they refuse to start water collection and propose a timetable for raising interest rates.

The United States continues to maintain low interest rates, breaking the market's original expectation that long-term interest rates could gradually rise at the beginning of this year, which would have a positive impact on bank dividend differentials.

The current trend of long-term interest rates is not rising but falling, which puts pressure on bank dividend differentials.

Guo Jiayao, vice president of Zhengrong's financial business department, said in an interview that when Hang Seng Bank's stock price drops to about 150 yuan, it is advisable to buy long-term interest.

(Profile picture)

Licaitong's support for bank earnings is still difficult to offset pressure on interest rate differentials

The Securities Regulatory Commission recently stated that the preparatory work for cross-border financial management has entered the final stage, and the market is expected to have a chance to launch it around July, which will have a positive impact on local banks.

Guo Jiayao pointed out that the Licaitong guidelines have just been launched, and banks need time to study. At the same time, the product types are expected to focus on conservative wealth management products, which have limited revenue benefits for banks, and it is difficult to offset the negative impact of pressure on interest rates.

Bank stocks weakened before the Fed's interest rate negotiation, which also reflected the market's expectation of pressure on interest rate spreads.

The share price of Bank of China Hong Kong fell for three consecutive days. On Monday, its share price fell 1.8%, underperforming the broader market and its peers. The share price of East Asia fell for the fourth consecutive day and fell 1.7%, a seven-month low.

Hang Seng shares fell 0.3%.

Guo Jiayao pointed out that the recent decline in bank stocks, investors can pay attention to low-level buying opportunities, for the purpose of long-term interest collection.

Among the three bank stocks, he prefers Hang Seng, who believes that the performance is relatively stable, the stock price is low in volatility, and the interest rate is 3.5%.

However, he reminded you to be patient when entering the market, and you don't need to buy at the current price. He suggested that you can take advantage of the stock price to pull back to about 150 yuan before buying at a low level.

After the China-Hong Kong holiday, the market resumes with funds to sell the old to buy the new Fed discusses interest today and tomorrow│Financial Commentary

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Hang Seng Bank The Bank of East Asia Bank of China