The analyst rating from Jefferies is based on several key factors:
1. Positive Outlook for Hong Kong Financial Stocks: Jefferies is optimistic about the financial sector in Hong Kong, driven by an active IPO market, structural cross-border capital flows, and a recovering residential property market.
2. Leverage Effect and Valuation: Jefferies particularly favored HKEX (00388.HK) for its higher leverage effect and noted that its current valuations are below the long-term average, leading to an upgrade to a Buy rating and an increase in the target price.
3. Local Banks' Performance: While Jefferies expects local bank stocks to perform positively, they anticipate that these stocks may underperform international peers due to lower capital return levels. BOC Hong Kong and Bank of East Asia were rated Hold, with a preference for BOC Hong Kong due to its stronger fundamentals.
4. Credit Costs and Trading Opportunities: For Bank of East Asia, Jefferies acknowledged high credit costs but also highlighted potential trading opportunities related to index inclusion and the property market recovery, suggesting that if the de-risking process accelerates, there could be further re-rating potential.
Overall, the ratings reflect a combination of market conditions, stock valuations, and expectations for future performance in the context of the Hong Kong financial landscape.
