Hong Kong banks may not cut their prime rates this year, but local interbank rates will still follow US rates lower, benefiting a majority of borrowers, according to a senior executive of the Hong Kong Monetary Authority (HKMA). Analysts widely expect the US Federal Reserve to cut its key rate by three-quarters of a point this year, but Hong Kong commercial banks are unlikely to cut their prime le...
Hong Kong banks may not cut their prime rates this year, but local interbank rates will still follow US rates lower, benefiting a majority of borrowers, according to a senior executive of the Hong Kong Monetary Authority (HKMA). Analysts widely expect the US Federal Reserve to cut its key rate by three-quarters of a point this year, but Hong Kong commercial banks are unlikely to cut their prime lending rates more than they already have. “It would be hard for banks to cut their prime rate any further because they can no longer cut their savings rate, which is now close to zero,” said HKMA deputy chief executive Arthur Yuen Kowk-hang. Advertisement “If they cut the prime rate but not their savings rates, it would narrow their net interest margins, which would affect their interest income. From a risk-management perspective, it is not ideal for the banks to do so.” Yuen said the current net interest margin of Hong Kong lenders was about 1.4 per cent, which was among the narrowest worldwide; in most major economies it is above 2 per cent. Advertisement The HKMA has followed the Fed’s monetary policy since 1983 under its linked exchange-rate system, but commercial banks retain discretion in setting their prime and deposit rates.
Andrii Yalanskyi/iStock via Getty Images Overview When I previously covered Highland Opportunities and Income Fund ( HFRO ), I issued a hold rating due to the challenging macroenvironment. Since my last coverage, the Fed has initiated interest rate cuts, and this has created the expectation for lower interest rates over the next twelve months. Therefore, I wanted to revisit the fund's overall valu...
Andrii Yalanskyi/iStock via Getty Images Overview When I previously covered Highland Opportunities and Income Fund ( HFRO ), I issued a hold rating due to the challenging macroenvironment. Since my last coverage, the Fed has initiated interest rate cuts, and this has created the expectation for lower interest rates over the next twelve months. Therefore, I wanted to revisit the fund's overall value proposition and ability to navigate challenging conditions going forward. The fund primarily focuses on real estate securities, which has been a sector that continues to lag behind the rest of the market. Looking at the performance over the last twelve months, we can see that HFRO's share price has increased by nearly 9.6%. The fund has been able to hold onto some of the positive price growth experienced around mid-2025. When including all distributions that were paid out to shareholders, the total return jumps up to 19.6% over the same time frame. HFRO now offers investors a starting dividend yield of 7.5% and issues payouts on a monthly basis. Based on the latest financials, the fund's dividend payouts are likely to remain stable despite variable coverage. Data by YCharts The fund continues to trade at a discounted price to NAV valuation, which can be an indication that it's a solid time to accumulate shares. However, a position in HFRO makes the most sense for investors that believe interest rates will continue to decline over the next twelve months. In a scenario where interest rates do not decline, the fund's risk profile can increase. For instance, HFRO's dividends may get cut if the underlying earnings do not improve over the next year. So let's start by taking a look at the underlying strategy that HFRO implements to generate its earnings. Fund Strategy According to the latest fact sheet, HFRO has total managed assets of $880M that are allocated across a blended portfolio of assets. The fund's primary objective is to grow capital while providing a high current inc...