Credit Suisse upgraded HKEX rating to "Buy" and raised target price for Bank of East Asia and BOC Hong Kong

The Credit Suisse research report indicates a positive outlook for Hong Kong financial stocks this year, due to an active IPO market, structural cross-border capital flows, and a preliminary recovery in the residential property market. Credit Suisse expects that future Federal Reserve policies may normalize HIBOR, predicting that the one-month HIBOR will remain at around 2.5% in the first half of this year.

Regarding credit costs, Credit Suisse takes a more conservative view, preferring banks with more robust balance sheets and a more cautious risk attitude. Although the local property market has shown preliminary signs of recovery this year, a structural turnaround has yet to be seen. Credit Suisse believes that the peak of non-performing loans at the industry level has passed, expecting that non-performing loans related to commercial real estate will stabilize this year, followed by a de-risking process lasting one to two years.

In terms of stocks, Credit Suisse is most optimistic about Hong Kong Exchanges and Clearing (00388.HK), as it has greater leverage and is currently valued below its long-term average, upgrading its rating to "Buy" with a target price raised from HKD 373.94 to HKD 502. Although Credit Suisse also expects local bank stocks to record positive returns this year, they may underperform their international peers due to lower capital return levels. It assigns a "Hold" rating to BOC Hong Kong (02388.HK) and Bank of East Asia (00023.HK), preferring the former based on its more resilient fundamentals and higher return levels; the target price for BOC is raised from HKD 31 to HKD 48.

As for Bank of East Asia, Credit Suisse expects credit costs to remain high this year, but there are also trading opportunities, considering potential index inclusion and the recovery of the Hong Kong property market. If the de-risking process is faster than expected, it could lead to further valuation reassessment; the target price is raised from HKD 12 to HKD 16