JPMorgan reiterated Overweight ratings on HSBC and Standard Chartered after shares corrected 8% and 10% following new ODI rules. The broker estimates MCV wealth business accounts for just 3% to 8% of group earnings, calling the impact controllable.
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JPMorgan reiterates Overweight on HSBC, StanChart after 8% to 10% selloff
HSBC Holdings and Standard Chartered shares have corrected 8% and 10% since new offshore investment rules took effect June 1, JPMorgan said.
"Mainland investors expressed surprise at the pullback and maintained a more optimistic view on regulatory risks, believing the impact of the new rules should be controllable," JPMorgan said in a report following client meetings in Shanghai.
In fiscal 2025, Hong Kong wealth management contributed 7.6% of group revenue for HSBC and 6.6% for StanChart. Assuming 20% to 40% of that revenue comes from Mainland Chinese Visitor business, MCV would account for approximately 3% to 6% of HSBC's group earnings and 4% to 8% for StanChart, the broker estimated.
The selloff may reflect investor concern that the new ODI rules will curb growth in MCV-related wealth products, a key driver for both banks' Asian wealth businesses. JPMorgan reiterated its Overweight rating on both stocks, with target prices of HKD182 for HSBC and HKD275 for StanChart, implying upside of about 35% and 45%, respectively.
The new rules, announced June 1, tightened requirements for offshore direct investment by Chinese residents. HSBC fell 1.4% to around HKD135 on June 10, while StanChart dropped 2.3% to about HKD189, underperforming the Hang Seng Index by 4 percentage points and 6 percentage points, respectively.
The correction has been sharper than fundamentals warrant, JPMorgan said, noting that the estimated earnings exposure to MCV is limited. The broker's assessment contrasts with the market's initial reaction, which priced in a more severe impact on the two banks' wealth management franchises.
The reiteration suggests JPMorgan views the selloff as overdone relative to the actual earnings risk. Investors will watch for any further regulatory clarification from Beijing and the banks' interim results for concrete evidence of MCV business trends.
This article is for informational purposes only and does not constitute investment advice.
