HK bank stocks surge 4%-8% as Fed rate hike odds hit 80%

Hong Kong bank stocks surged against a falling broader market as traders priced in an 80% probability of a Federal Reserve rate hike in September, up from 68% a day earlier, according to CME FedWatch data.

"Higher crude oil prices are pushing up bond yields on the notions that central banks will not be able to lower their interest rates because of problematic inflation," said Jim Wyckoff, a market analyst at American Gold Exchange. "Rising bond yields are the enemy of gold and silver market bulls because gold and silver carry no yield."

BOC HONG KONG (02388.HK) jumped 4.22% to HKD50.4, breaching the HKD50 mark for the first time in its history. BANK OF E ASIA (00023.HK) rose 6.46%, DAHSING BANKING (02356.HK) climbed 7.33%, and DAH SING (00440.HK) surged 8.3% to HKD46.72, its highest level in nearly eight years. JPMorgan upgraded BOC HONG KONG to Overweight with a price target of HKD53.3, citing expectations of improved net interest margins in a higher-for-longer rate environment.

The rally in Hong Kong bank stocks reflects a sector rotation as investors prepare for a sustained period of elevated US interest rates. The Hang Seng Index fell 1.3% to 24,877, with turnover of HKD87.7 billion, as tariff concerns and rising oil prices weighed on the broader market. International banks diverged, with HSBC HOLDINGS (00005.HK) retreating 1.18% from its record high to HKD159.6 and STANCHART (02888.HK) falling 2.03% to HKD222.

The divergence between local Hong Kong lenders and international banks shows the market's bet that rising US rates will benefit domestically focused lenders more directly through improved net interest margins. BOC HONG KONG's record high above HKD50 marks a milestone for the city's second-largest listed bank by market value, with trading volume reaching 15.2 million shares and turnover of HKD760 million.

The rate hike expectations were fueled by a surge in crude oil prices, with Brent hitting $100 a barrel for the first time since late May after Yemen's Houthis claimed attacks on two Saudi oil tankers. The US 10-year Treasury yield rose to a more than one-year high, while the dollar gained 0.3%, pressuring gold prices down 2.1% to $4,041.59 an ounce. Spot silver slid 4.3% to $57.15.

Traders are now focused on next week's Federal Reserve meeting. While the central bank is expected to hold rates steady, the tone of Chair Kevin Warsh's press conference will be closely watched for signals on the September decision. The CME FedWatch tool showed the probability of a September hike rising to about 80% from 68% on Wednesday, reflecting the market's repricing of monetary policy expectations.

The broader Hong Kong market remained under pressure from multiple headwinds. Escalating US-Iran tensions and President Donald Trump's latest tariff plans continued to weigh on investor sentiment, offsetting the positive impact of rate-driven gains in the banking sector.

This article is for informational purposes only and does not constitute investment advice.