News Room - Business/Economics

Posted on 01 Dec 2008

Asian markets can withstand turmoil

Economies in region more resilient and less dependent on US

 

THE impact of the global economic meltdown on Asian markets, including Malaysia, is not expected to be as severe or as long as the 1997/98 regional financial crisis, Standard & Poor’s (S&P) vice-president (equity research, Asia) Lorraine Tan says.

 

According to Tan, Asian countries, especially Malaysia and to some extent Thailand, are now more resilient and less dependent on the US market for exports.

 

These countries also have higher reserves now compared with the time of the Asian financial crisis.

 

A recent report by S&P entitled, Asia Equity Market Outlook 2009: Two Halves, said Malaysia’s banking sector had little or no exposure to the US subprime mortgages and other toxic financial instruments.

Lorraine Tan

 

It said corporations had deleveraged since the Asian crisis and there had been significant advances made in the domestic bond market in the past decade.

 

S&P found Malaysian banks to be well-capitalised with the risk-weighted capital adequacy ratio at 13% and bank lending maintained at sensible levels – 0.5% year-on-year loans growth and 73.4% loans-to-deposits ratio at end-September 2008.

 

The report said banks had insignificant deterioration in asset quality, with non-performing loans showing a declining trend to 2.4% at end-September 2008, an improvement from 3.4% a year earlier and 5.1% two years prior.

 

The report found no evidence of any property or asset bubble in Malaysia.

 

Tan said Malaysia was much less impacted than other Asian countries like Japan, Singapore and China that had exposure to the US subprime market.

 

“While the Malaysian stock market has fallen about 40% in valuation (since the global economic crisis started), Singapore and China have fared worst – down by 60%,” she said.

 

She added that the downside to stocks was now more limited and their valuations still attractive.

 

But Tan warned that there were still some hurdles to overcome in the near term.

 

On the recovery timeframe, she said: “The impact of the global economic downturn on Asian countries may be longer but likely to be less acute.”

 

She said the economic crisis was far from over and that corporate earnings in Asia were likely to be most affected in the fourth quarter this year, and possibly extending into the first quarter of 2009.

 

“However, we believe the economic conditions will get better by the second half of next year,” Tan said.

 

On the sectors that were more resilient, she said products for local consumption, oil and gas, food and beverage, as well as the agricultural sectors would be less affected by the downturn, while property and manufacturing would be the hardest hit.

 

Tan said the economic recovery for Malaysia would be supported by the RM7bil stimulus package, interest rate cut as well as other monetary and fiscal initiatives introduced by the Government.