The following article is sourced from: Shan Heng Securities Strategist - Zheng Kunlun Albert

Edited by: Well Link International Securities

On July 22, the People's Bank of China simultaneously reduced the Loan Prime Rate (LPR) for the 1-year term and for terms over 5 years by 0.1 percentage points, to 3.35% and 3.85% respectively.

In simple terms, the central bank of China may adopt a lower interest rate level to support the real estate market and economic development.

Theoretically, a lower interest rate level can alleviate the financial burden on homeowners. This will also reduce the borrowing costs for businesses. 

However, the ease with which small and medium-sized enterprises and private companies can obtain bank loans should be another issue.

At the same time, some analysts and investors may believe that banks face the risk of a decline in net interest margins (after further rate cuts).

From a positive perspective, a lower interest rate (more money supply) is necessary for the middle class and small and medium-sized enterprises, 

allowing them to increase spending and maintain corporate investment, thereby stabilizing the overall economic momentum.

Similar to the mid-term stock price adjustment of oil and energy stocks, state-owned bank stocks have also undergone a mid-term adjustment. 

Taking the Industrial and Commercial Bank of China (1398) as an example, the stock price has fallen from HKD 4.81 to HKD 4.38 since July 3, 2024. The market sentiment related to state-owned enterprise shares is one thing, 

while the potential downward pressure on bank net interest margins is another factor to consider.

The latest Hang Seng Index level is around 17,600 points, slightly improved from the level on July 19 (17,417 points). This implies that the aforementioned 

Chinese interest rate cut measures have at least moderately stabilized the Hong Kong stock market conditions.