Ahad, 4 September 2011

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Malaysian banks losing appeal?

Posted: 04 Sep 2011 04:33 PM PDT

PETALING JAYA: In the absence of mergers and acquisitions (M&As) activities, the Malaysian banking sector appears to have lost its lustre while Thai and Indonesian banks are hogging analysts' headlines.

"Thai and Indonesian banks are more attractive from the perspective of investment recovery and overall macro growth, respectively," said Lim Sue Lin, senior banking analyst at HwangDBS Vickers Research.

As for Malaysian banks, she noted that apart from the lack of M&As that had fuelled interest lately, there was not much upside to earnings growth.

Nomura Equity Research, in its report, said: "From a valuation perspective, Malaysian banks do not appear cheap, trading at an average financial year 2011 forecast (FY11F) price-to-book value (P/BV) of 2.2 times on a return on equity (ROE) of 17%.

"By comparison, we find Thai banks trading at a P/BV of 1.8 times with an average ROE of 15%.

The Nomura report noted that political risk was rising in Malaysia as the country headed for the next general election, and it expected:

2011 loans growth to maintain last year's momentum at 13%. But for 2012F, loan growths will fall back to trend levels of about 9%;

an absence of overnight policy rate hikes; net interest margin (NIM) compression has been more intense and prolonged than expected, leading to poorer average lending yields.

credit costs to fall more quickly than expected, cushioning pressure from narrowing NIMs.

Looking at the track record for the past 20 years, Nomura noted that for every 1% increase in the Government's development spending, it would typically raise construction sector loans by 1%.

"However, we note that the multiplier effect was stronger in the 1990s (2.7 times) than in the 2000s (0.4 time), partly due to greater level of private sector construction activities in the 1990s and a lower level of gearing for construction companies in the 2000s.

"Even if the Government achieves its economic transformation programme-driven gross domestic product growth target of 6%, it may only translate to a further 0.7 percentage point upside to loan growth, which is negligible," said Nomura.

DBS Vickers Research expects Thailand's economy to remain resilient in 2011 and provide a solid base for an investment recovery cycle. Capacity utilisation has gradually improved from trough levels of 50% back in February 2009.

"We have seen further recovery since April 2010, when it stood at 58%, to 62% currently," said DBS Vickers. "We expect to a strong 1H11 led by inventory re-building in manufacturing and a recovery in agricultural output, which was hit by adverse weather in 2010."

Muted private investment since 2006 due to political instability has meant that capacity utilisation rates are elevated in fast growing export sectors.

Sectors such as vehicles and technology have seen capacity utilisation rates increase in 2010 from 2009, said DBS Vickers.

A Singapore-based banking analyst views the Indonesia economic outlook as resilient, fuelled by strong domestic demand which acts as a buffer against world economic uncertainties.

"In that sense, Indonesia stands out and investors are willing to pay a premium for that," he said.

In an earlier report, DBS Vickers said: "Indonesian banks remain an attractive investment on a longer-term basis, based on potential growth prospects.

"Near-term, we see policies which will be implemented within the banking system derailing growth to some extent. The key risk lies in a potential decline in NIM, which will lead to lower ROEs.

"Despite potential competition in micro lending, we think lending yields will remain high (versus non-micro lending banks), given the large untapped business opportunities.

"The Indonesian market is largely domestic driven and is also awash with foreign liquidity."

The booming economy and accelerating infrastructure spending are good for loan growth in Indonesia.

Also, Indonesian banks' low loan-to-Gross Domestic Product ratio of only 28% represents one of the most promising growth prospects in the Asean region," said DBS Vickers.

However, on the longer term outlook, Malaysian banks are not losing out.

Although the interest in domestic M&As may have dwindled, it is expected to be rekindled once market conditions returned to normalcy.

"Future M&A activity will be driven by the competitive intensity within the Malaysian banking sector, the existence of smaller commercial and Islamic banks, which are potential targets and the controlling interests, held by certain shareholders in the local banking sector," said Malaysian Rating Corp vice-president and head of financial institution ratings Anandakumar Jegarasasingam.

On the regional front, Anandakumar said the main competitive threat for major Malaysian banks were the Singaporean banks.

"The Indonesian or Thai banks are unlikely to emerge as a regional force, at least in the medium term, as their financial sector and regulatory framework have not matured as much as that of Singapore or Malaysia."

On whether Malaysian banks can compete with Thai and Indonesian banks, Maybank president and CEO Datuk Seri Wahid Omar said: "Absolutely. Malaysian banks are stable and there are solid companies in the region."

At the same time, Wahid acknowledged the growing optimism in Thailand especially with the new government in place and Indonesia as the single largest economy in Asean.

Experts downbeat on global economy

Posted: 04 Sep 2011 04:27 PM PDT

CERNOBBIO, Italy: Business leaders and finance experts gathered here have offered a downbeat assessment of the global economy, with several predicting another recession due to a calamitous cocktail of sluggish growth, eurozone dysfunction and financial market volatility.

The year's events from natural disasters and violent uprisings to fears of debt defaults have not only sent shock waves through the financial world but also caused a slump in confidence among consumers and industry.

"There is a significant probability of a double-dip recession," New York University economist Nouriel Roubini said on Friday in opening remarks that lived up to his nickname of "Dr Doom", earned for forecasting a financial crisis years before the 2008 crash, even as many revelled in the boom times.

Much of the concern focused on the United States.

"The numbers that we've seen recently for the United States on manufacturing, on construction, on consumers' sentiment tell me that the odds have gotten much greater that the United States is going to continue to decline and that we are going to be in a formal recession before the end of the year," Harvard University economics professor Martin Feldstein, a member of President Barack Obama's Economic Recovery Advisory Board, told the Associated Press.

Roubini blamed the mostly unexpected events of 2011 the Arab Spring fuelling oil prices, the turmoil in Greece spreading through Europe, the Japanese natural disasters upsetting global supply chains, and "significant worries about the US system and the political fight (over the debt ceiling) between the Democrats and the Republicans".

Because of this series of shocks, he estimated that advanced economies had reached a stall speed of around 1% annual growth, a figure that is lower than official expectations in many countries.

Roubini said governments and central banks, which have already made multi-trillion-dollar stimulus moves, had no more "bullets". - AP

QE3 no silver bullet for markets

Posted: 04 Sep 2011 04:26 PM PDT

NEW YORK: Friday's jobs report that showed hiring in the United States unexpectedly ground to a halt in August is increasing speculation the US Federal Reserve will move to stimulate the economy. But will it help stocks?

Fed action if it happens is no longer viewed as the elixir for the stock market it once was.

Wall Street tumbled over 2% on Friday as investors fretted more about the economic outlook rather than looking ahead to another round of Fed bond buying.

This week, the question of whether the Fed will step up to the plate with another round of quantitative easing will take centrestage with a highly anticipated speech from President Barack Obama. That could make for another volatile week.

This time last year, anticipation of a second round of quantitative easing, or QE2, sparked an almost uninterrupted rally that lifted the S&P 500 around 30% from August to May.

What a difference a year makes. Confidence in policymakers is sapping away as the economy languishes, the United States grapples with the loss of its top-notch credit rating, and the European Union seems to be coming undone at the seams.

Wall Street sees an 80% chance the Fed will intervene in the bond market to lower long-term interest rates, according to a Reuters poll on Friday.

But Friday's action in the stock market signalled that equity investors do not see that prospect as silver bullet for their woes. The broad-based S&P 500 index fell 2.5% on the day.

"This downdraft is based on sentiment and that has to be turned around," said Brian Battle, vice-president of trading at Performance Trust Capital Partners in Chicago. "I think we're in for a longer trend of either malaise or just a down channel."

That means traders and investors who were hoping for a return to normalcy after extreme volatility in August may have to wait a little longer.

Obama is due to address a joint session of Congress on Thursday to lay out plans to create jobs, boost economic growth and lower the deficit.

He faces an uphill struggle when it come to reassuring investors, who fault the lack of consensus in Washington. Heading into an election year, the disharmony is not likely to get better any time soon.

Non-farm payrolls were unchanged last month, the Labour Department said on Friday, and figures for previous months were also revised down to show employers created a combined 58,000 fewer jobs than had been thought in June and July.

The US Treasury market rallied after the data as Goldman Sachs and other US primary dealers big Wall Street firms that do business directly with the Fed said they expect the US central bank to start buying longer-dated bonds after its Sept 2021 meeting.

Seasoned traders say that August's extreme volatility was one of the most trying periods in living memory, outstripping the 20082009 meltdown and the 1987 stock market crash on Black Monday.

"I've been doing this for 20 years and it's never been more exhausting," said the chief executive of a New York-based proprietary trading firm, who said many of his traders closed out their positions in August, reducing the firm's inventories to just 15% to 20% of what they could be.

At least some of that volatility looks set to spill over into September until there is more clarity over the economy and what the Fed is likely to do at its September meeting.

But some fund managers who take a more long-term view are using pullbacks to cut back positions that have done less well while increasing positions in their preferred stocks.

Many fund managers are still convinced the US economy will avoid a recession and stocks will rally into the end of the year. - Reuters

One of them, Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, does not expect the Fed to act this month. He is not expecting a recession, but admits he has become more defensive.

"We used some of the volatility to swap out lower yields for higher yields, believing that a combination of income with capital growth potential will help us weather days like today," he said. "Equity values should still hold their own if not appreciate given the still-good corporate profit picture." - Reuters

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