[ET Net News Agency, 31 March 2025] The impact of US President Trump's tariffs is now
coming to the forefront. In addition to the University of Michigan's consumer confidence
index falling to a two-year low in March, the core PCE in the US rose by 2.8% year-on-year
in February, exceeding both the previous value and expectations. Boston Federal Reserve
President Collins stated bluntly that "the inflationary pressure from tariffs seems
unavoidable." Last Friday, US stocks plunged sharply, and Hong Kong stocks followed suit,
although domestic banks, supported by central government funds, strengthened against the
trend. However, this was not enough to help the Hong Kong market recover from its decline,
with the Hang Seng Index closing near its midday low at 23,022 points, approaching the
23,000 mark, down 404 points or 1.73%, with turnover at HKD 143.7 billion.

"Wong Wai Ho: Hang Seng Index may test the 50-day moving average if it falls below 23,000"

The Hang Seng Index breached the policy support level of around 23,200 points, which was
established in mid-October last year, approaching the 23,000 mark. Wong Wai Ho, the First
Vice President of the Yan Yun Family Office (HK) Limited, told ET Net News Agency that
that the Hang Seng Index may face further adjustments in the short term, with 23,000 being
the first significant threshold. If it falls below this level, it will likely test around
22,500 points (near the 50-day line). However, if it can hold above the 50-day line, the
overall market outlook will not be overly pessimistic. He pointed out that the Hang Seng
Index has seen significant and rapid gains over the past few months, reflecting various
factors such as technology stocks, valuation adjustments, AI, and policy influences, thus
creating a demand for adjustment. Additionally, there are concerns in the market regarding
the impact of Trump's reciprocal tariffs set to take effect on 2 April, as well as the
risk of a US economic recession. Recent turnover has decreased compared to previous highs,
indicating a more conservative approach from investors.

"Central government capital injection has dilution effects and lower pricing than
expected"

Domestic bank stocks have gradually completed their earnings announcements. Wong noted
that the overall performance of domestic banks has been good, with stable growth and no
significant impact on profitability from previously concerning issues such as bad debts,
meeting market expectations.
However, it is worth noting that, according to a comparison of net profit attributable
to shareholders from the six major state-owned banks, four banks, including ICBC (01398)
and CCB (00939), recorded growth rates below 1%. Wong pointed out that domestic banks have
been in a low-growth state, primarily serving the state, so their growth rates are not
particularly fast, often in the mid-single digits in previous years. Last year, due to the
economic situation in Mainland China, corporate activity decreased, lending slowed, and
profit growth consequently moderated. Nevertheless, despite the slower growth, the overall
quality of domestic bank stocks remains robust, with generally high capital adequacy
ratios, allowing them some flexibility to maintain growth, with future growth expectations
still centred around low to mid-single-digit increases.
Moreover, ICBC and CCB are the only two banks showing negative revenue growth, which
analysts believe reflects the challenges faced by traditional business models. Wong
agreed, stating that the traditional business model of banks is closely linked to
corporate activity, and last year's mediocre corporate performance weighed on bank
operations, thus impacting revenue. However, he cautioned that relying solely on the
performance of the past year or half-year is insufficient to assess the overall banking
landscape; if this trend continues, more attention will be needed.
Regarding net interest margins, last year's results showed significant narrowing
pressures on the net interest margins of the six major state-owned commercial banks due to
the dual effects of falling market interest rates and ongoing financial incentives for the
real economy. Wong further noted that there is a possibility of further narrowing of net
interest margins in the future, but the overall level is unlikely to be overly dramatic.
He explained that, on one hand, the government needs to maintain a certain level of
profitability for banks to avoid excessive narrowing that could affect performance; on the
other hand, overall interest rates in Mainland China are declining, leading to
expectations of interest rate cuts, which could increase the likelihood of net interest
margin contractions. However, banks may offset the impact of narrowing margins by
increasing lending volumes, so the narrowing of net interest margins does not have a
significantly negative impact on domestic bank stocks.
The Big Four banks, including Bank of China (03988), CCB, Bank of Communications
(03328), and PSBC (01658), announced a targeted equity placement yesterday, intending to
issue A-shares to the "National Team" led by the Ministry of Finance, raising a total of
no more than RMB 520 billion, primarily to increase their core Tier 1 capital. The issue
prices represent a premium of 8.8% to 21.5% over last Friday's closing price for A-shares.
Wong stated that this move is generally positive, but it does have certain drawbacks.
The capital injection can enhance banks' capital adequacy ratios and strengthen their
financial position, but it also carries dilution effects that may impact earnings per
share and interest rates. Moreover, the pricing of this injection is below the book value
(PB) by about one time, slightly lower than market expectations, as theoretically, the
National Team's pricing should be higher.
For investors who do not currently hold domestic bank stocks, he mentioned that with
market expectations of at least RMB 1 trillion or more in capital injections, a second
round may be anticipated. If investors are considering purchasing domestic bank stocks,
they should look at Agricultural Bank of China (01288) as well, due to its relatively low
capital adequacy ratio and urgent need for replenishment, making it more likely to receive
future capital injection. Overall, he still recommends a medium- to long-term strategy,
suggesting buying on dips.