ASIAN banks and markets here are a lot more stable and better placed for long- term growth, despite the sub-prime fears.
Lorraine Tan, S&P’s vice-president for Asian Equity Research, sees Singapore banks, in particular, as being very stable in a market where there is widespread fear of a financial sector collapse brought on by the US sub-prime crisis.
‘Middle Asia banks have always had a naturally growing loans market,’ she noted. ‘They did not need to do much on the treasury side for income growth.’
As such, the exposure of banks in places like Singapore, China and Malaysia to collateralised debt obligations and other financial instruments has not been as rampant, she added.
Ms Tan noted that the sub-prime jitters had nevertheless rattled markets here so badly that values had started emerging in various sectors.
‘In Singapore, we have drifted down from around 15 times earnings, to around 13 times. This is much lower than the 25 times during the 1997 Asian financial crisis.’
She noted that these valuations were supported by strong corporate fundamentals. ‘Asian corporates are much stronger now than they were during the 1997 financial crisis,’ she noted. ‘Balance sheets are strong and debt levels are low, while at the market level, there is still a lot of liquidity out there. And savings rates are very high.’
Still, the Asian markets were clearly in a bear zone. However, given the intrinsic strength within the system, the current US-contagion ‘hit’ will be less severe and the market’s recovery will be speedier than during the previous crisis, she added.
‘As soon as there is some sign of clarity, we should see markets rebound very strongly.’
But governments have to manage the tendency for Asian consumers to stop spending and oversave at the first sign of trouble. And the Asian real estate sector is a key factor, where a diminution in perceived value could have a severe psychological impact on demand and spending.
The good news, she added, was that the current jitters will prevent Asian governments from taking measures which could kill off demand. China, for example, could now hold back from manipulating the yuan.
Ms Tan has nevertheless lowered her target for the Straits Times Index this year to 3,500 points, from 4,000 earlier.
Source: Business Times 5 Feb 08