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July 23, 2009updated 04 Apr 2017 3:56pm

Asian private banks optimistic for H209

A number of Asian private banks claim they are seeing signs the market is recovering after a tough 12 months for investment markets.In a media briefing, Fan Cheuk Wan, managing director and head of research Asia-Pacific for Credit Suisses Private Banking division, said: Asia is expected to lead the global recovery due to its low leverage and the financial flexibility it has to pump prime the economy.China and India offer the key engine to drive Asias secular growth trends

By Titien Ahmad

Without the structural issues faced by the US and European economies, there is hope Asian private banks may benefit from a returning risk appetite among investors in the region. Titien Ahmad investigates the strategies wealth managers are advising their clients to use to take advantage. Asia outperforms global peers  

A number of Asian private banks claim they are seeing signs the market is recovering after a tough 12 months for investment markets.

In a media briefing, Fan Cheuk Wan, managing director and head of research Asia-Pacific for Credit Suisse’s Private Banking division, said: “Asia is expected to lead the global recovery due to its low leverage and the financial flexibility it has to pump prime the economy.

“China and India offer the key engine to drive Asia’s secular growth trends. To position for the end of recession and a cyclical recovery, investors should use short-term tactical pullbacks to add positions in recovery leaders and reflation plays in Asia.”

The chief economist of VP Bank, Dr Joerg Zeuner, shared the same optimism: “The outlook for the second half of 2009 is moderately positive. VP Bank forecasts at least stabilisation in the real economy and very modest inflation until the end of the year.”

Zeuner sees a stabilisation in the second half as the US economy slowly moves to growth but will remain below its potential growth rate.

“We think that the US is moving out of a recession as we speak,” said Zeuner.

No bank failures in Asia

He said that the impact in Asia will be unlike the 1998 crisis as the current situation is more cyclical and there have been no bank failures in the region.

Credit Suisse pointed out earlier in the year that Asia would remain resilient and is “well positioned to be the first region to exit the economic contraction phase”.

“Our cautious optimism at that time was underpinned by Asia’s low leverage, both in the public and private sectors and, in particular, in Asia’s banking system. The low leverage, coupled with Asia’s large foreign exchange reserves of $4.4 trillion [including Japan] and persistent current account surpluses, gives governments the leeway to ease macroeconomic policies aggressively to revive growth,” Fan added.

“In addition, the sharp drop in oil prices in the second half of 2008 lowered inflation significantly, giving Asian central banks the scope to cut interest rates aggressively. China clearly leads the pack with its hefty CNY4 trillion [$585 billion] fiscal stimulus package that amounts to 11 percent of its GDP and the massive credit expansion undertaken by its banking system. Total new loans granted in the Chinese banking system between October 2008 and May 2009 amounted to CNY7.3 trillion, underscoring the strong monetary policy response in addition to the fiscal stimulus initiatives.”

Fan remains bullish on growth in Asia given the region’s outlook for recovery, positive earnings upgrade momentum and favourable global fund flows into risk assets. She foresees that GDP growth in some Asian countries might even turn positive in the fourth quarter of 2009 and her team has raised its non-Japan Asia GDP growth forecast from 4.4 percent to 4.5 percent for 2009 and from 6.7 percent to 6.8 percent for 2010.

“The strong willingness and high financial flexibility to spend and cut rates have helped Asia to be more resilient to this global financial crisis compared with the developed economies and other emerging markets,” commented Joseph Tan, director and Asian chief economist for Credit Suisse’s private banking division.

Fan added: “Based on the Credit Suisse Cycle Clock indicator, non-Japan Asia is expected to continue its outperformance against the developed markets in the next 12 months, as the global recession is nearing an end in Q309 and the global economy is headed toward a cyclical recovery in Q4.”

Although there has been talk of other alternative currencies such as the Chinese yuan replacing the US dollar in world trade, Zeuner asserts that the US dollar will still remain an important reserve currency.

“The yuan or any other alternative are unlikely to replace US currency. Chinese capital markets are thin. Interest and exchange rates are not sufficiently market determined. In fact the US dollar looks to strengthen on low inflation expectations and a narrowing US current account deficit,” he said.

Fan’s advice to investors is to focus on the recovery theme with an overweight position in markets with the strongest recovery potential and sectors that will benefit from the reflation trends. In Asia-Pacific, Credit Suisse’s private banking division maintains an overweight position on China and India, which are the two fastest growing economies in Asia. At the same time, Fan prefers markets such as Indonesia and Singapore within the Asean region given their higher sensitivity to cyclical recovery.

While Zeuner is also optimistic on China, he believes that domestic demand may be strong enough to get China going but will not be as substantial as in the larger European countries.

“China still needs the US for a substantial increase in economic growth,” said Zeuner.

Local investors should gradually reduce cash and government bond holdings, taking credit risk instead through corporate bond investments. They should also increase stock holdings to levels consistent with risk attitude. Investors should also consider that the outlook for industrial commodities is brighter than precious metals and that gold is good for diversification as the gold price may be overvalued in recovery. Conservative investors may consider convertible bonds as an alternative and while alternative investments such as hedge funds and private equity offer returns, risks are still high.

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