Opportunities outside China
A long way from a financial crisis
We believe Asian banks will experience an earnings growth slowdown in
the next 12-18 months, rather than the kind of financial meltdown we
saw 12 years ago. We believe governments across the region learnt a
hard lesson from the Asian Financial Crisis and have reacted to the
current down cycle in a much timely matter. Wealth accumulation in the
past decade of being a global export powerhouse dismisses the risk of
externally financed internal deficits. Rapid interest rate cuts and currency
depreciation since 3Q08 help mitigate the concerns of asset quality
deterioration, especially in the export sector.
Equity fund raising is not a systematic risk
Our stress test assumes NPL balances for Asian banks will double from
2008 to 2009 and double again from 2009 and 2010. The result of the
test shows that only eight banks of the 39 banks we included in the test
might require additional equity fund raising, but not immediately. The
trend in NPL development since 3Q08 has been much better than
expected in most countries, and is no where near close to levels seen
during the Asian Financial Crisis. With ample liquidity, the NPL balance
only rose slowly in most Asian countries. Analysts are starting to raise
their earnings forecasts, believing the worst is already behind us.
Near term safe spot in China: an opportunity
Being the first market to recover from the trough of November 2008,
China banks now lack catalysts for further upside. High valuations, the
slowdown in new loan growth from 2Q09 and concerns over the quality
of the government’s infrastructure investments make China’s giant stateowned
banks less attractive, right now. We expect the upwards earnings
revisions to continue in the region, and select BOC HK, HSBC, CMB,
SBI, BDI, Bangkok Bank, and Taishin as the region’s top buys. Bank
of Communication, Bumiputra Commerce, and Hana are the region’s top
sells.
Contents
A long way from a financial crisis................................................................................... 3
More government reaction, better structured system 3
Equity fund raising is not a systematic risk .................................................................... 7
Only a lucky few 7
Favour the undervalued............................................................................................... 12
China – stimulus efforts delays asset quality concern 14
Hong Kong – benefits from China 15
India – expect a rise in infrastructure spending 16
Korea – difficult 2009 but mostly priced in 17
Singapore – corporate Singapore is strong 18
Malaysia – loan rescheduling glosses over problems 19
Indonesia – domestic demand intact 19
Thailand – relatively insulated from global downturn 20
Taiwan – new opportunity across the Strait 22
Financial statements.................................................................................................... 24
Bank of China (Hong Kong), HSBC Holdings, China Merchants Bank, State Bank of India,
Bank Danamon, Bangkok Bank, Taishin FHC, Bank of Communications, Bumiputra-Commerce,
Hana Financial
Regional