Citi cautiously optimistic on HK lenders, prefers StanChart and HSBC

Analysts at Citi sounded a cautiously optimistic note on the outlook for the main Hong Kong banking groups - and for StanChart and HSBC in particular - on the back of the improving macroeconomic backdrop.

All told, they projected that the administrative area's gross domestic product would rebound at a pace of 3.5% over 2021 after plummeting by 5.8% in the year before.

To support their reasoning, they pointed to improving surveys of economic activity, as well as stronger consumption and exports.

The reopening of the border with the Chinese mainland was also expected to deliver a boost to HK's hard-hit tourism and retail sectors.

And liquidity in the banking system was "abundant", they said.

On the flip side, September elections to the legislative council and the February 2022 election of a new HK chief executive might revive "heated" political debates.

Even so, despite having rebounded by approximately 30% from their recent trough, the sector was trading at one standard deviation below the five-year moving average for its price-to-earnings multiple.

"STAN and HSBC are better positioned than domestic HK banks, driven by stronger earnings recovery and restart of dividend," Citi said.

"In the post Covid-19 world, challenges and opportunities coexist for the sector: [1] Volume Growth to Drive EPS Recovery, [2] Fee Income Diversification, [3] Digital Banking and Automation, [4] Earnings Outlook. Pecking order: STAN > HSBC> BoCHK > HSB > DSFH/DSBG > BEA."