To The Moon

JPMorgan’s latest report on Hong Kong banking stocks indicates that the sector’s first-half 2026 performance came in ahead of expectations, underpinned mainly by non-net interest income and displaying more resilient than anticipated pre-provision operating profit momentum. While smaller lenders continue to face elevated credit costs, larger institutions are navigating the landscape more favorably.

On the downside, total shareholder return metrics for HSBC Holdings (00005), Standard Chartered (02888), and BOC Hong Kong (02388) all fell slightly short of projections. The brokerage sees scope for upward revisions to market consensus earnings-per-share estimates, and notes that growing expectations of Federal Reserve rate hikes could provide additional support to share price sentiment.

JPMorgan retains a constructive stance on the industry, ranking large banks in the following preference order: Standard Chartered, HSBC Holdings, and BOC Hong Kong. The firm has set target prices of HKD 310, HKD 205, and HKD 53.3 respectively, with “Overweight” ratings assigned to all three.

According to the report, average first-half 2026 earnings for the Hong Kong banks under coverage grew 33% year-on-year, a notable improvement from the 4% growth recorded for full-year 2025. This acceleration was largely driven by a roughly 50% earnings rebound at HSBC/Hang Seng Bank, supported by significantly lower credit costs and improved non-operating items. Excluding those entities, earnings growth for other banks generally ranged from high single digits to low double digits, propelled by resilient and better-than-expected pre-provision operating profit growth.

The report also notes that most banks experienced sequential net interest margin contraction in the first half, which came as no real surprise given the lower Hong Kong interbank offered rates during the period. However, forward guidance carries some lingering uncertainty. On the positive side, asset yields should remain resilient, while the challenge lies in managing funding costs amid intensifying deposit competition and a steeper yield curve. Balance sheet expansion is expected to support at least single-digit net interest income growth over the next 12 to 18 months.