Morgan Stanley has released a research report stating that despite renewed market concerns over a macroeconomic slowdown, the bank expects a firm and steady deleveraging process to emerge over the next 12 to 18 months, supporting a continued moderate recovery in profit growth for major banks and further valuation repair.

Given earlier-than-expected recovery in net interest margins (NIM), moderate balance sheet growth, robust fee income growth, and expected lower credit costs in the coming years, the bank has raised its price targets for eight Hong Kong-listed Chinese bank stocks while lowering those for two others.

Morgan Stanley noted that although balance sheet expansion is slowing, deleveraging measures have reduced medium- to long-term risks and will help credit costs gradually decline over time. Additionally, deleveraging promotes a more sustainable financial system and supports a gradual recovery in loan yields and bank return on equity (ROE), both of which currently remain below levels needed to support long-term sustainable development.

This is evident in the context of the macroeconomic slowdown, where the loan prime rate (LPR) and the floor on loan yields have remained stable, factors that help stabilize the net interest margins of China's banking sector. The bank is confident about the gradual recovery in loan and financial asset yields, which, combined with gradually declining credit costs, will support a moderate recovery in profit growth for major banks.

Morgan Stanley raised price targets for eight Hong Kong-listed Chinese bank stocks as follows: Agricultural Bank of China Ltd (HKG: 01288) price target raised 14.9% to HK$8.5; China Construction Bank Corp (HKG: 00939) price target raised 15% to HK$13; Bank of China Ltd (HKG: 03988) price target raised 14.9% to HK$7.7; Postal Savings Bank of China Co Ltd (HKG: 01658) price target raised 7.9% to HK$6.8; China Merchants Bank Co Ltd (HKG: 03968) price target raised 1.8% to HK$61.5; China CITIC Bank Corp Ltd (HKG: 00998) price target raised 11.7% to HK$11.5; Bank of Communications Co Ltd (HKG: 03328) price target raised 10.8% to HK$7.2; and Chongqing Rural Commercial Bank Co Ltd (HKG: 03618) price target raised 7.8% to HK$5.5.

Meanwhile, the bank lowered price targets for two Hong Kong-listed Chinese bank stocks as follows: China Minsheng Banking Corp Ltd (HKG: 01988) price target lowered 11.3% to HK$4.7; and China Everbright Bank Co Ltd (HKG: 06818) price target lowered 11.1% to HK$5.5.