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HK stock traders dash for HSBC as China giants sink

One factor behind HSBC's recent gain is a jump in the yield on US sovereign notes, with the 10-year rate this week climbing to the highest level since March.

Hong Kong

HONG Kong investors are finding shelter in the city's bank shares as everything from Chinese telecommunications firms to Tencent Holdings Ltd turns toxic.

Financial stocks were the biggest gainers on the benchmark Hang Seng Index on Thursday, led by HSBC Holdings plc, which rose as much as 5.5 per cent in Hong Kong following its 10 per cent rally in London the day prior. Standard Chartered plc rose 7.7 per cent. On the other hand, Alibaba Group Holding Ltd dropped 5.9 per cent and Tencent fell 4.4 per cent in Hong Kong, after reports that the Trump administration may bar investments in two of the world's most valuable companies.

"People are shifting their money, there are so many troubles and uncertainties for growth stocks right now," said Dickie Wong, executive director of research at Kingston Securities Ltd, adding that banks currently offered a haven from recent regulatory and political tensions.

One factor behind HSBC's recent gain is a jump in the yield on US sovereign notes, with the 10-year rate this week climbing to the highest level since March. Financial firms have suffered as low interest rates and quantitative easing from central banks around the world suppressed bond yields across virtually all maturities. Lending tends to become more profitable for banks when yield curves steepen, or longer-dated bond yields turn higher versus those on shorter-maturity debt.

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"The steepening yield curve creates a good environment for banks like HSBC," said Alex Wong, director of asset management at Ample Capital Ltd. "After the recent rally, there's still some room for HSBC to rise further since its share price was way too low and investors are now betting on economic recovery."

HSBC's net interest margin - a key measure of loan profitability - was at just 1.2 per cent in the third quarter of last year, down 13 basis points from the prior period. Income on that measure was down 6 per cent, according to its October earnings update. The bank said at the time that prolonged low interest rates were likely to have "a significant impact" on its net interest income.

Sentiment toward the stock was also improving as investors anticipate share buybacks this year, said Ample Capital's Mr Wong. HSBC could spend as much as US$3.5 billion between this year and next, according to a recent research note from Goldman Sachs.

HSBC is up 54 per cent since touching its 25-year low in September. The rebound follows months of uncertainty for the lender, as investors fretted over how mounting regulatory, economic and geopolitical pressures would affect it. Since then, hopes that a US presidency change will ease tensions between Washington and Beijing, and signs that British regulators will soften their stance on a dividend ban, have helped fuel optimism. BLOOMBERG

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