Morgan Stanley released a report indicating that banks in Hong Kong and Singapore have performed excellently due to rising interest rates, but the interest rate cycle has turned. It is expected that the growth of non-banking businesses, especially wealth management, will support the ROI in the future. The bank believes that banks in Hong Kong and Singapore have strong cash generation capabilities, making them still defensive.

Among Hong Kong banks, the bank prefers Standard Chartered (02888.HK), while downgrading BOC HONG KONG (02388.HK) and Hang Seng (00011.HK) ratings from 'in line with the market' to 'Shareholding', raising the target price for BOC from 100.4 HKD to 108.5 HKD, and lowering the target price for Hang Seng from 97.1 HKD to 93 HKD. The bank raised the target price for HSBC (00005.HK) from 76.8 HKD to 84.6 HKD, maintaining a 'Shareholding' rating.

The bank believes that the hedging measures of banks have reduced sensitivity to falling interest rates, expecting a compound annual growth rate of -2% to +2% for net interest income from 2024 to 2026, but expects that the growth of non-premium income, especially wealth management fees, will offset these pressures.

M organized estimates that last year wealth management fees for banks grew by as much as 40% year-on-year, and its model shows that wealth management income should continue to record a compound annual growth rate of up to 17% in the next two years, offsetting the decline in net interest income this year. It is anticipated that DBS and Standard Chartered will be the biggest beneficiaries of wealth income growth, with both banks generating 20 to 25% of income from affluent customer groups.