Sell Hong Kong stocks when the likes of HSBC raise prime rates, historical data suggests
- All four industry groups within the Hang Seng Index posted losses in the one month after HSBC last raised its best rates in September 2018
- The HKMA raised its base rate to the highest level since 2019 and leading banks could raise their prime rates in the fourth quarter, Invesco says
Investors should hold on to cash or reduce their stock holdings in the event commercial banks in Hong Kong start raising their prime rates for the first time in almost four years, if history is any guide.
In a three-month horizon, all but the utilities sub-gauge declined, with financials and developers declining 8.1 per cent and 0.8 per cent, respectively, while the Hang Seng Index slumped by 8.2 per cent.
“The best period to own Hong Kong banks is up till the rate hike, since higher rates mean higher savings deposit rates that could incrementally squeeze margins,” said David Chao, a strategist at US money manager Invesco in Hong Kong. “Overall operating margins could still expand albeit at a slower pace after the prime rate hike.”
With regards to developers, Chao said that rising mortgage rates and the weak macro backdrop could mean further headwinds for the sector, “though current valuations reflect much of the soft patch,” he added.
Hong Kong’s leading banks could raise their prime rates in the fourth quarter, he said.
