HSBC Research: Strong Inflow of Southbound Stock Funds, Positive Outlook for HKEX and BOC in Hong Kong Financial Sector

HSBC Global Research published a report on the Hong Kong financial industry, indicating that deposits in Hong Kong saw strong inflows in September, along with robust southbound stock inflows. It believes that loan growth seems to have bottomed out, and the rise in HIBOR supports the net interest margin (NIM) of Hong Kong banks; the momentum for fee income continues. HSBC has noticed an increase in global attention towards Hong Kong's financial industry and is optimistic about Hong Kong Exchanges and Clearing (00388.HK), BOC HONG KONG (02388.HK), and BANK OF E ASIA (00023.HK), all rated as "Buy."

The bank stated that deposits in Hong Kong grew by 1.3% month-on-month in September, bringing the year-to-date increase to 10.2%, or an annualized 13.8%. Loan growth also turned positive, rising by 0.7% month-on-month, reversing the negative growth of the previous two months. By the third quarter of 2025, loan growth was primarily driven by financial companies, brokerage firms, and mortgage loans, while property development and investment loans fell by 3.2% quarter-on-quarter. Increased property transactions supported mortgage loan approvals, indicating a more favorable growth outlook for the fourth quarter of 2025.

Additionally, the 1-month HIBOR remained stable in October, averaging around 3.5%, higher than the average of 2% in the third quarter of 2025. HSBC's interest rate strategists expect HIBOR to continue to be supported before the end of the year, as capital market activities remain relatively high. Given the rapid growth in deposits and the traditional liquidity tightening at year-end, HSBC Research has turned more optimistic about the net interest margin (NIM) and net interest income (NII) for the fourth quarter of this year.

HSBC Global Research also pointed out that the mainland government reiterated Hong Kong's status as an international financial center in its 15th Five-Year Plan, emphasizing Hong Kong's role in guiding financial innovation and deepening connections between mainland China and the global market. Hong Kong is expected to become the largest wealth management hub in the coming years, benefiting from enhanced regulations on funds, single-family offices, and performance fee tax incentives; and the Hong Kong Monetary Authority's launch of the "Fintech 2030" strategy to promote innovation and competitiveness, which will drive tokenized asset trading. The bank believes that Hong Kong can serve as a pioneering center for mainland China's participation in financial innovation.

HSBC Research's investment ratings and target prices for bank stocks are as follows:

Stock│Investment Rating│Target Price (HKD)

BOC HONG KONG (02388.HK)│Buy│45.2

BANK OF E ASIA (00023.HK)│Buy│15.3

Hong Kong Exchanges and Clearing (00388.HK)│Buy│521