How the tapering will hurt Hong Kong banks in the near future

Are they getting defensive?

According to Barclays, heading into 2014, investors are believed to position themselves defensively in those Hong Kong and Singapore banks that have a strong deposit franchise (in case of system fund outflows) and also those which are most leveraged to rising interest rates.

Interest rates in both Hong Kong and Singapore tend to closely track US rates.

Here's more from Barclays:

We believe Fed tapering and tightening could affect margins of the banks, system liquidity, deposit competition, loan growth, asset quality, and property prices, while our global asset allocation team believes there is a risk that Fed tapering and tightening occur earlier than the market is pricing in.

Our global asset allocation analyst, Jim McCormick, believes the risks of an early beginning for Fed tapering have risen (current estimate from the US economics team is for March 2014) with the recent improvement in US payrolls and also the tone of the latest Fed minutes.

Another strong US payroll report on 6 December could well seal the case for an early start. Moreover, he believes the market may have pushed out the time gap between the start of tapering and the first Fed tightening a little too far (Barclays estimate first rate hike in July 2015).