The number crunchers at HSBC have downgraded the recommendation on shares in the bank’s Asia-focused rival Standard Chartered PLC (LON:STAN), citing the wall of liquidity that has dampened the performance of the important Hong Kong market.
The team, led by Robin Down, has moved to ‘reduce’ from ‘hold’ on the stock, tweaking the price target down to 10p a share to 640p. At 11am, Standard was changing hands for 716p, down 5p.
The reason for the downgrade was a technical one, but has led to a downgrade to 2017 and 2018 earnings per share forecasts – by 12% and 18% respectively.
Normally, when US interest rates go up (as they have recently), the currency peg that links the US and Hong dollars usually leads to an immediate rise in borrowing costs on the former colony.
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This tends widen interest spreads and boosts margins for local lenders such as Standard.
“But unfortunately it’s not yet materialising,” HSBC said in a note to clients.
“Thanks seemingly to a wall of excess liquidity in Hong Kong, rates there have shrugged off the last two US rate increases.
“[This is] great for borrowers, not great for bank revenues.
“We’ve seen this scenario in the past, for example in 2004 and it’s taken some time (12 months-plus) to correct.
“Our concern was that was with relatively modest levels of excess Hong Kong liquidity: nothing on the magnitude of what we see today.”
Of the 12 analysts logged as following the Standard Chartered, eight are now in the same camp as HSBC and only two have ‘buy’ recommendations. The remainder think the stock is fully valued.