Credit Suisse has said that as it turned more optimistic on the region’s banking sector, and in a shift that bodes well for Southeast Asian countries, domestic demand, instead of exports, will drive economic growth in the second half of 2017.
Demand from other major economies is unlikely to fill that gap that has been created by the peaking of the export boost from China, the bank said in a report this week. According to Credit Suisse, also pointing to a slowdown are several indicators such as the CRB metal price index and industrial production in addition to the points mentioned above.
“Our economists believe that the tailwinds to exports are fading, which will result in export growth moderating from mid-teens rate to mid-single digit for the rest of the year,” it said.
“Moderation in export growth from ‘great’ to ‘good’ could result in greater differentiation in the growth outlook across economies. Our economists expect domestic demand growth to improve, partly offsetting weaker exports, at least in ASEAN (Association of Southeast Asian Nations).”
Deviating from its stance of favoring North Asian banks earlier in the year, such a macro backdrop has led to Credit Suisse preferring Southeast Asian banks in the second half of 2017.
Malaysia was also added to its list by the bank that had already liked Singapore and Indonesia. Ahead of a general election and the laggard impact of commodity price increases, Malaysia’s economy will benefit from government spending, it said.
The report pointed out that the bank expects the Malaysian banks to finally turn the corner this year after having delivered negative earnings growth for four straight years.
“The banks’ earnings in the remaining part of 2017 could be boosted by potential pick-up in non-interest income as capital market activity picks-up, loan growth acceleration, and further asset quality relief that could translate to lower credit costs,” said Credit Suisse, picking CIMB as its top choice.
Especially if the country’s banks could confirm that formation of bad loans have peaked in their 2018 guidance due in November, Credit Suisse also pointed to trading opportunities in Thailand later this year.
The ratings agency has indicated that the China banks are losing steam. After tightened regulations broke the rally in bank stocks, its “tactical positive call” on China banks was dropped off by Credit Suisse, which favored North Asian financials in the first half of this year.
Additionally, the bank pointed out that there were no immediate or impending or even clear signals that the Chinese government will relax any of the regulations imposed on Chinese banks. It also added that the world’s second-largest economy is also facing a “mild deceleration” at the same time.
“The positive case for banks rests on an easing cycle, especially in regulatory activism. Although it may have peaked, there is no clarity about a relaxation. We also don’t have any visibility on government behavior post-19th Party Congress,” it said
(Adapted from CNBC)