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Asia banks
European exposure also not a worry
Event
The ongoing plight of Europe over its debt problem creates worries about
Asian banks’ exposure to Europe. In reality, Asian banks have little direct
exposure, based on available disclosure by the banks.
Impact
Generally, there is limited visibility of banks’ specific European country and
asset class exposure, and the level of disclosure varies greatly by country.
From what we can gather, our findings are consistent with our earlier work
focusing on US$ exposure that found banks in more developed markets
generally having higher exposure outside their domestic shores. Within the
region, Singapore and Hong Kong potentially have the biggest exposure to
European claims as a percentage of total assets (6.5% and 6.2%,
respectively), although on individual names, the insurance-centric FHCs in
Taiwan (Shinkong, Cathay, and Fubon) have the largest exposure along with
UOB.
Beyond the possible direct exposure from loans and investments, the risk to
banks from Europe’s problems may arise from tighter credit conditions spilling
over to this region, if not the globe, to potentially making things difficult for
some of the Asian banks’ borrowers who do business with companies in
Europe (eg, a drop-off in orders, longer account receivables).
Outlook
Cyclicals are certainly not in favour, and we sense weak appeal of banks at
the moment. Furthermore, defensiveness may be the order of the day, and
financials typically do not tick off this box.
Nonetheless, we reiterate our positive fundamental stance on Asian banks.
Direct exposure to the US and EU zone are minimal, while there are many
strong domestic demand stories coursing through these countries despite the
worry of a slowdown in trade. In some way, this strength is being recognised
by the fact that the expected pullback in the smaller markets from raised risk
aversion has not happened – Asian banks have held up well.
In our view, bank performance had been dictated by the macro,
notwithstanding valuation concerns. The investment approach could broadly
be divided between a basket of countries with a good macro outlook versus
another with a bad macro. The good macro basket where top-down surprises
were being posted would include Asean, Taiwan, and Japan, while the bad
macro basket would have China, HK, India, and Korea. A look at share prices
would have found that this broad classification would have been a great
predictor of performance, and we hold that this macro approach, played out
through the banks, will continue to dictate price performance. So far, share
prices’ performance has supported our preference for Indonesia and
Singapore (with BNI and UOB) and our aversion HK and India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asia banks
European exposure also not a worry
Event
The ongoing plight of Europe over its debt problem creates worries about
Asian banks’ exposure to Europe. In reality, Asian banks have little direct
exposure, based on available disclosure by the banks.
Impact
Generally, there is limited visibility of banks’ specific European country and
asset class exposure, and the level of disclosure varies greatly by country.
From what we can gather, our findings are consistent with our earlier work
focusing on US$ exposure that found banks in more developed markets
generally having higher exposure outside their domestic shores. Within the
region, Singapore and Hong Kong potentially have the biggest exposure to
European claims as a percentage of total assets (6.5% and 6.2%,
respectively), although on individual names, the insurance-centric FHCs in
Taiwan (Shinkong, Cathay, and Fubon) have the largest exposure along with
UOB.
Beyond the possible direct exposure from loans and investments, the risk to
banks from Europe’s problems may arise from tighter credit conditions spilling
over to this region, if not the globe, to potentially making things difficult for
some of the Asian banks’ borrowers who do business with companies in
Europe (eg, a drop-off in orders, longer account receivables).
Outlook
Cyclicals are certainly not in favour, and we sense weak appeal of banks at
the moment. Furthermore, defensiveness may be the order of the day, and
financials typically do not tick off this box.
Nonetheless, we reiterate our positive fundamental stance on Asian banks.
Direct exposure to the US and EU zone are minimal, while there are many
strong domestic demand stories coursing through these countries despite the
worry of a slowdown in trade. In some way, this strength is being recognised
by the fact that the expected pullback in the smaller markets from raised risk
aversion has not happened – Asian banks have held up well.
In our view, bank performance had been dictated by the macro,
notwithstanding valuation concerns. The investment approach could broadly
be divided between a basket of countries with a good macro outlook versus
another with a bad macro. The good macro basket where top-down surprises
were being posted would include Asean, Taiwan, and Japan, while the bad
macro basket would have China, HK, India, and Korea. A look at share prices
would have found that this broad classification would have been a great
predictor of performance, and we hold that this macro approach, played out
through the banks, will continue to dictate price performance. So far, share
prices’ performance has supported our preference for Indonesia and
Singapore (with BNI and UOB) and our aversion HK and India.
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