As the United States finally embarks on a rate-cutting journey, the Hong Kong stock market may have passed the worst period of liquidity. Whether the funding situation will improve remains to be seen, but the benefits of rate cuts have begun to show, with HSBC and Bank of China announcing a reduction in their prime rates.
Those with mortgages will benefit immediately, and the cost of corporate financing will gradually decrease. The market is even expecting another 50 basis point rate cut before the end of the year. However, it is worth noting that in recent years, many companies have gradually increased the proportion of fixed-rate loans, so the pressure of high interest rates will persist for some time.
On the other hand, property stocks are once again collectively soaring. Earlier in late August and early September, there was news that regulatory agencies had proposed an overall reduction of around 80 basis points in existing mortgage rates. According to Morgan Stanley's calculations, if rates are cut across the board by 80 basis points, the banking industry's expected net interest margin and profits for the 25th fiscal year will decrease by 9 basis points and 9%, respectively.
As of the end of June, the banking industry's average net interest margin fell to a historic low of 1.54%, far below the threshold of 1.8%. There are doubts about whether banks can further pass on benefits, especially considering that a reduction in mortgage burdens may not necessarily boost consumption, as the saved money may be used for savings instead.
Moreover, compared to only lowering the Loan Prime Rate (LPR), an across-the-board cut will make banks more cautious in lending, which is not conducive to real estate sales. Especially when considering the impact of taxes and credit costs, investing in 10-year government bonds may be more cost-effective for banks than lending.
In any case, an across-the-board cut will render the entire argument for stabilizing the net interest margin invalid, increasing the policy risk faced by banks. In the short term, further adjustments are inevitable.
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Hong Kong stocks rebounded due to the US interest rate cut, with property stocks collectively soaring. The benefits of the rate cut have emerged, as HSBC and Bank of China have lowered their prime rates, benefiting mortgage loans and reducing corporate financing costs. The market expects another 50 basis point rate cut before the end of the year, but pressure from high interest rates still exists. Regulatory authorities have proposed an 80 basis point reduction in existing home loan rates, which may affect banks' net interest margins and profits. A comprehensive rate cut may lead to cautious lending by banks, affecting real estate sales, increasing policy risks, and requiring continued adjustments in the short term

- With the U.S. embarking on a rate-cutting journey, Hong Kong stocks may have weathered the worst liquidity period. While the funding situation's improvement remains to be seen, the rate cut benefits are emerging, with HSBC and Bank of China already lowering prime rates. Mortgage holders benefit immediately, and corporate financing costs are expected to gradually decrease, with markets even anticipating a further 50 basis point cut by year-end.
- However, the increasing proportion of fixed-rate loans by many companies in recent years suggests sustained pressure from high rates. On another note, property stocks are surging collectively again, following proposals to cut existing mortgage rates by around 80 basis points. This comprehensive rate reduction could impact banks' net interest margins and profits significantly.
- Despite the potential benefits, uncertainties loom over whether banks will pass on the rate cuts entirely, and reduced mortgage burdens may not necessarily boost consumption but could be channeled into savings. Moreover, a comprehensive rate cut might lead banks to be more cautious in lending, potentially dampening real estate sales. Considering tax implications and credit costs, investing in 10-year government bonds could be more cost-effective for banks than lending. Overall, the argument for stabilizing net interest margins through comprehensive cuts is challenged, increasing policy risks for banks, necessitating continued adjustments in the short term.

Hong Kong Stock Market Review: Collective Surge in Real Estate Stocks