Morgan Stanley released a research report stating that Hk Based Banks in Hong Kong and Singapore have performed well due to rising interest rates, but the interest rate cycle has turned, and it is expected that future growth in non-banking businesses, especially wealth management, will support ROI. The bank believes that Hk Based Banks have strong cash generation capabilities, thus remaining defensive.

Within Hk Based Banks, the bank prefers STANCHART (02888) and has downgraded BOC HONG KONG (02388) and HANG SENG BANK (00011) ratings, both from 'Market Perform' to 'Shareholding', increased the Target Price for BOC from HKD 100.4 to HKD 108.5, and lowered the Target Price for HANG SENG from HKD 97.1 to HKD 93. The bank raised the Target Price for HSBC Holdings (00005) from HKD 76.8 to HKD 84.6 while maintaining the 'Shareholding' rating.

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

Morgan Stanley estimates that last year's wealth management fees for banks grew by as much as 40% year-on-year, while the bank's model indicates that wealth management revenue should continue to record a compound annual growth rate of up to 17% over the next two years, offsetting this year's decline in net interest income. The bank expects that DBS and STANCHART will be the biggest beneficiaries of wealth income growth, with both banks deriving 20% to 25% of their revenue from affluent clientele.