Asian banks have managed to outshine their global peers thus far amid a pandemic, by more than double in terms of share price performance.
On an absolute basis, the financial sector broadly registered share price losses with the MSCI World Financials index posting a 37 percent drop year-to-date. Global banks have been tumbling in equity markets including landmark names like UBS (-29 percent year-to-date), HSBC (-37 percent) and Citi (48 percent).
But as expected, banks in Asia have outperformed their global peers, most notably the largest players in Hong Kong and Singapore.
HSI Finance – 18 Percent Loss
At less than half of the MSCI World Financial’s losses, the largest Hong Kong-listed banks by market cap has thus far weathered the market volatile relatively well despite also being home to the troubled HSBC, which was recently hit harder after scrapping dividends. This is especially due to the strong presence of Chinese lenders – three of the country’s big four banks were the top performers year-to-date excluding the local bourse.
But headwinds maybe arriving. In February, S&P Global estimated that a prolonged health emergency could cause non-performing loan rates to triple to 5.6 trillion yuan ($790 billion). A UBS estimate predicts a 39 percent plunge in China bank profits even as its government rushes to absorb bad loans.
In addition to a potential second wave of infections from Wuhan’s reopening, the outlook could be further worsened if reported doubts by U.S. and U.K. officials about the accuracy of reported figures in mainland China proves true.
Big 3+1 – 15 Percent Loss
Within the Strait Times Index, four financial companies qualify: DBS, OCBC, UOB – Singapore’s big three banks – and the local exchange. The four firms collectively saw market cap drop 15 percent, outperforming rival Asian financial hub, Hong Kong.
This was entirely buoyed by the performance of DBS and the Singapore Exchange which posted around 1.7 percent loss and 3.2 percent gain, respectively.
But following the latest relief measures announced by the Monetary Authority of Singapore, profit pressures are expected to rise as local lenders defer payments and cut rates. In the worst-case scenario, a Jefferies report projects UOB, OCBC and DBS to shave 18, 16 and 14 percent of 2020 revenue, respectively.
Global Bank Rebound?
In the short-term, there are signs of potential for a mini rebound in global banking stocks after prices tumbled further in March. Bank stocks were currently trading at around 8 times forward earnings estimates compared to their 17.5 times long-term price-to-earnings ratio.
Bargain hunters were reportedly expressing interest in household names such as J.P. Morgan, which were oversold at levels unseen in several decades based on RSI (relative strength index) data.
