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Hong Kong Banks Slump After Morgan Stanley Downgrades Outlook

Hong Kong Banks Slump After Morgan Stanley Downgrades Outlook

(Bloomberg) -- Hong Kong banks declined after Morgan Stanley cut the sector’s outlook, saying the stocks will underperform as a slowing economy and falling rates hurt profitability.

Bank of East Asia Ltd. slumped 4.5% at the close, while Hang Seng Bank Ltd. lost 3.3%. The MSCI Hong Kong Index dropped 1.4%, dipping below the 14,000 point level for the first time since January.

Morgan Stanley reduced its recommendation on the industry to cautious from in-line. It cut Hang Seng Bank and HSBC Holdings Plc to underweight.

“We would continue to avoid the segment,“ analysts including Anil Agarwal wrote in a note. “The economy is slowing fairly quickly in Hong Kong, with almost all key indicators meaningfully down year on year. This will pressure earnings in the second half and beyond.”

Hong Kong Banks Slump After Morgan Stanley Downgrades Outlook

Falling local interest rates will further cloud the outlook, the brokerage said.

While banks are trading below long-term averages, they may continue to derate, similar to what’s happened in other markets including China and South Korea, according to Morgan Stanley. Local lenders may also face competition in the future from virtual banks, it said.

Standard Chartered Plc slid 0.9% in Hong Kong, while HSBC Holdings Plc. dipped 0.6%.

The MSCI Hong Kong has fallen 18% since its April peak as protests increasingly paralyze the city. The tourism industry has been hammered, while the economy is heading toward a recession. Retail sales fell by a record 23% in August from a year earlier.

To contact the reporter on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Richard Frost, Ryan Lovdahl

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