HIBOR and Bank Performance: The one-month HIBOR has rebounded to an average of 3.19% in 4Q25, supporting banks' net interest income, which is expected to exceed 3Q25 levels.

Non-Performing Loan Risks: Despite improved net interest income, UBS warns of rising non-performing loan risks for Hong Kong banks in 2H25, particularly due to concerns over China's commercial real estate market.

Credit Cost Forecasts: UBS has raised its credit cost forecasts for BOC Hong Kong and Bank of East Asia, reflecting the increased risks associated with the current market conditions.

Cautious Outlook for 2026: Looking ahead, UBS maintains a cautious stance on Hong Kong banks, focusing on 2026 earnings prospects, with net interest income and credit costs as key factors influencing their ratings and target prices.

Investment Outlook: Bank of E Asia projects the HSI target at 30,800 for 2026, focusing on AI, emerging industries, and service consumption, with a P/E ratio of 12.8x.

Interest Rate Predictions: The bank anticipates the Federal Reserve will cut interest rates 3-4 times in 2026, while the HKD prime rate is expected to remain stable despite potential declines in HIBOR.

Economic Growth Forecast: The mainland China and Hong Kong economies are expected to grow by approximately 4.8% and 2.5-3% respectively in 2026.

Property Market Expectations: Hong Kong's private residential property prices are projected to increase by high single digits year-on-year, supported by the Fed's anticipated rate cuts.

Hong Kong Financial Sector Performance: HSBC Global Research reports strong deposit and southbound equity inflows in September, indicating a positive trend in Hong Kong's financial sector, with loan growth stabilizing and higher HIBOR benefiting banks' net interest margins.

Bullish Outlook on HKEX: The report expresses optimism for HKEX (00388.HK) due to increased global interest in Hong Kong's financial market.

Stock Ratings and Short Selling: BOC Hong Kong (02388.HK), Bank of East Asia (00023.HK), and HKEX (00388.HK) are all rated as "Buy," with notable short selling activity reported for each.

Target Price Adjustments: Morgan Stanley has raised the target price for BOC Hong Kong to $35.7, maintaining an underweight rating, while other banks' target prices remain unchanged.

Hong Kong Stock Market Performance: The HSI opened higher but closed down 76 points at 26,752, while the HSCEI and HSTECH showed mixed results. Total market turnover was HKD386.818 billion.

HSBC and Hang Seng Bank Developments: HSBC proposed to privatize Hang Seng Bank at a 30.3% premium, causing HSBC's stock to drop nearly 6% while Hang Seng Bank surged 25.9%. Other local banks also experienced gains.

AI and Chip Sector Fluctuations: AI-related stocks were volatile, with major chip makers like SMIC and Hua Hong Semi declining, while companies like ASMPT and Lenovo Group saw significant gains.

Power and Clean Energy Stocks Rise: Power utilities and clean energy stocks performed well, with notable increases in CGN Power, China Power, and Goldwind, reflecting a positive trend in these sectors.

Market Performance: The HSI rose slightly by 11 points to 26,840, while the HSCEI and HSTECH increased by 49 points and 41 points, respectively, with a total half-day turnover of $207.38 billion.

HSBC Holdings and Hang Seng Bank: HSBC Holdings saw a significant drop of 6.2% due to plans to privatize Hang Seng Bank, which surged by 26.3% as a result of the announcement, with HSBC expected to suspend share buybacks for three quarters.

AI and Tech Stocks: AI-related stocks performed well, with notable gains in chip stocks like SMIC and HUA HONG SEMI, as well as significant increases in telecom and power infrastructure stocks, including ZTE and SH ELECTRIC.

Clean Energy Sector: Clean energy stocks also experienced upward movement, with GOLDWIND and FLAT GLASS rising by 8.9% and 7.7%, respectively, alongside other clean energy companies showing gains between 3.7% and 4.5%.