02388 Overview

Positive Outlook for Hong Kong Financial Stocks: Jefferies is optimistic about Hong Kong financial stocks in 2023, driven by an active IPO market, cross-border capital flows, and a recovering residential property market, with expectations of HIBOR normalization by 1H26.

Stock Recommendations: Jefferies upgraded HKEX to Buy, raising its target price from HKD373.94 to HKD502, citing its higher leverage effect and attractive valuations.

Local Banks Performance: While local bank stocks are expected to yield positive returns, they may lag behind international counterparts due to lower capital returns, with BOC Hong Kong rated Hold and its target price increased from HKD31 to HKD48.

Bank of East Asia Insights: Jefferies anticipates high credit costs for Bank of East Asia but sees trading opportunities linked to potential index inclusion and property market recovery, raising its target price from HKD12 to HKD16.

Positive Outlook for Hong Kong Financial Stocks: Jefferies predicts a favorable year for Hong Kong financial stocks, driven by an active IPO market, cross-border capital flows, and a recovering residential property market, with expectations of HIBOR normalization by 1H26.

Stock Recommendations: Jefferies upgraded HKEX to Buy, raising its target price from HKD373.94 to HKD502, citing its higher leverage effect and attractive valuations.

Local Banks Performance: While local bank stocks are expected to yield positive returns, they may lag behind international counterparts due to lower capital returns, with BOC Hong Kong and Bank of East Asia rated Hold.

Target Price Adjustments: Jefferies increased the target price for BOC Hong Kong from HKD31 to HKD48 and for Bank of East Asia from HKD12 to HKD16, highlighting potential trading opportunities amid high credit costs and market recovery.

Green Loan Agreement: BOC Hong Kong has secured a one-year green loan of $70 million from Sinopec, marking a significant milestone as the first green loan in the petrochemical and energy sector certified by HKQAA.

Certification Standards: This loan adheres to the rigorous standards of the Green Loan Principles (GLP) and the Hong Kong Taxonomy for Sustainable Finance Phase 2A, highlighting its commitment to sustainable finance practices.

New Regulations on Virtual Currency: Eight Chinese government departments issued a notice to further prevent risks associated with virtual currency, while the China Securities Regulatory Commission introduced guidelines for the issuance of asset-backed securities tokens, defining Real World Assets (RWA) and establishing a regulatory framework for overseas tokenization of domestic assets.

Implications of the Regulation: The new regulations clarify the distinction between virtual currency and RWA, enforce compliance based on asset classification, and promote RWA financing for domestic entities abroad, adhering to the principle of "same business, same risk, same rules."

Hong Kong's Role as a Digital Asset Center: Hong Kong is expected to benefit significantly from the demand for quality asset outflows from China, with licensed Virtual Asset Trading Platforms (VATP) positioned as key players in the RWA sector, facilitating compliant listing, custody, and trading services.

Beneficiaries of Expanded Financing Channels: The expanded overseas RWA financing channels will benefit two tiers of entities: T1 includes financial infrastructure providers and brokers with cross-border experience, while T2 consists of Hong Kong licensed VATP brokerages and trading platforms.

New Regulations on Virtual Currency: Eight Chinese government departments issued a notice to prevent risks associated with virtual currency, while the China Securities Regulatory Commission introduced guidelines for the issuance of asset-backed securities tokens, defining Real World Assets (RWA) and establishing a regulatory framework for overseas tokenization of domestic assets.

Implications of the Regulation: The new regulations clarify the distinction between virtual currency and RWA, enforce compliance based on asset classification, and promote the overseas financing of RWAs by domestic entities, aligning them with traditional financing regulations.

Hong Kong's Role as a Digital Asset Center: Hong Kong is expected to benefit significantly from the demand for quality asset outflows from China, with licensed Virtual Asset Trading Platforms (VATP) anticipated to play a crucial role in the RWA sector's growth and normalization.

Beneficiaries of Expanded Financing Channels: The expanded overseas RWA financing channels are expected to benefit two tiers of institutions: T1 beneficiaries include financial service providers and brokers with cross-border experience, while T2 beneficiaries consist of Hong Kong licensed VATP brokerages and trading platforms.

Hong Kong Banks' 2H25 Results: Hong Kong banks are expected to announce their 2H25 results in mid-February, with Citi Research predicting results will align with expectations despite potential revenue upside being offset by higher impairment charges.

Interest Income and Fee Growth: The normalization of HIBOR is anticipated to support net interest income in 4Q25, although growth in fee income may slow due to a high base.

Citi Research's Preferences: Citi Research favors international banks, particularly HSBC HOLDINGS, which is expected to provide positive updates on its 2026 targets and benefit from improved non-interest income.

Target Price Adjustments: Citi Research has raised target prices for BOC HONG KONG and BANK OF E ASIA, reflecting an increase in full-year dividend payout ratios, with ratings set at Buy and Neutral, respectively.