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<Research>M Stanley: Recent Mkt Concerns Over HK Financial Sector Apparently Overdone
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The newly introduced State Council regulations on overseas investment and the China Securities Regulatory Commission (CSRC)'s rectification of cross-border stock trading are essentially aimed at establishing a rule-of-law framework to protect China's outbound direct investment (ODI) in the real economy and to channel funds into compliant official channels (such as Stock Connect, QDII and Cross-boundary Wealth Management Connect), rather than targeting residents' normal overseas financial and asset allocation needs, Morgan Stanley said in its report. Under the current regulatory standards, mainland residents may still open and operate investment accounts or purchase insurance in person in Hong Kong as usual. They are only unable to directly operate core online overseas investment and trading functions within mainland China. This standard is largely consistent with the compliant management framework long implemented for insurance business. On this basis, Morgan Stanley opined that recent market concerns over the Hong Kong financial sector are apparently overdone, and provided the following assessment on four key financial institutions: AIA (01299.HK): The recent share price has corrected by about 13% due to excessive market concerns that cross-border insurance business from Mainland Chinese Visitors (MCVs) would be disrupted. However, insurance regulators in both regions (such as the Hong Kong Insurance Authority) have recently reiterated that as long as the entire sales and policy signing process is completed in person by customers in Hong Kong, such cross-border insurance business remains compliant and operates as usual. Morgan Stanley estimated that even under an extreme and unlikely scenario of "no new MCV business starting from 2H26", the impact on its EV or operating profit would only be within a manageable range of 2-6%. Its current valuation is highly attractive, and the Overweight rating is maintained. HSBC HOLDINGS (00005.HK) and STANCHART (02888.HK): The banking and wealth management businesses of both banks operate under highly compliant regulatory guidelines and are minimally affected by the crackdown on unlicensed "grey channel" securities activities or illegal cross-border securities account openings. At the same time, the opening of general overseas deposit and savings accounts by mainland residents is not the target of this regulatory rectification. Morgan Stanley previously adopted relatively conservative assumptions on wealth management and capital inflows for both banks. Current valuations do not fully reflect their solid return potential, and their share prices have also overshot on the downside. Therefore, the Overweight rating is maintained for both. Regarding HKEX (00388.HK), the core objective of regulators is to eliminate unlicensed grey-market offshore brokers while actively channeling mainland funds into official and legitimate channels. As formal cross-border capital connectivity schemes (such as Stock Connect) continue to expand, Hong Kong’s role as a core hub for attracting China-related wealth creation and facilitating legitimate capital account flows remains unchanged. Therefore, HKEX will be a long-term major beneficiary of the expansion of official channels. Auto-translated by AI This article was automatically translated by AI, the original language version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. More Details
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