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