Finance stocks hardest hit

  • Business
  • Saturday, 24 Sep 2011

PETALING JAYA: Finance stocks lead declines on Bursa Malaysia with the country's largest bank, Malayan Banking Bhd (Maybank) losing RM3.06bil of its market capitalisation of RM62.81bil on Thursday, as it succumbed to the bearish sentiments dominating markets globally.

The stock touched an intra-day low of RM7.95 and ended yesterday at RM7.99 with 20.953 million shares changing hands.

Global capital markets have plunged technically into bear territory, with the MSCI Index losing some 20% since peaking on May 2.

The second largest banking group, CIMB Bank, added three sen to RM6.74; however, it has shed some 17% of its share price since late last month.

Both banks took a nose-dive, touching a 52-week low after Credit Suisse Group AG said they were most vulnerable to de-rating risks, while CIMB regained ground after falling to an intra-day low of RM6.60.

“Our analysis suggests that CIMB and Maybank are most at risk, while Public Bank and Alliance Financial Group offer better downside protection.

“We continue to favour those banks that trade on comparatively low valuations, and are relatively under-owned by foreigners and could be re-rated on developments in mergers and acquisitions,” it said in a report.

Since the global financial crisis in 2008, foreign investors have increased their average holdings in Malaysian banks from 21.4% to 24.3%, according to Credit Suisse. The most widely held Malaysian bank among foreigners is CIMB with a 36.4% holding and accounting for 13.7% of total holdings of foreigners in Malaysia.

Credit Suisse says historical earnings performance suggests that the earnings downside risk is limited to less than 15%, adding that earnings of Maybank and CIMB are more vulnerable, while earnings of RHB Capital, Hong Leong Bank and Public Bank are quite resilient.

Public Bank fell 16 sen to RM12.44, Hong Leong Financial Group lost 88 sen to RM10.06 while Hong Leong Bank shed 13 sen to RM9.85. RHB Capital declined 18 sen to RM7.72 and Alliance Financial Group edged down one sen to RM3.15.

Recently, OSK Research downgraded the local banking sector to “neutral” from “overweight”, citing lack of catalysts amid strong external headwinds.

“Although the banks under our coverage continued to report earnings which were largely in line with our expectations, this was largely driven by lower provisions and an unsustainable surge in non-interest income trading gains for certain banks.

“The quality of earnings, as reflected in the growth momentum of the sector's pre-provision operating profit, has been on a decline since the first quarter of 2011, with the first-half annualised pre-provision operating profit growing at just 1.7% compared with 12.1% in 2010 and 14.9% in 2009,” it said.

OSK also said it might be time for a reversal of fortunes, as banks were a proxy to the economy and had performed exceptionally well since the economy started to recover in early 2009.

The Finance index had outperformed the broader FBM KLCI from April 2009 to early August 2011, notching nearly 27 consecutive months of out-performance and 32 months of uptrend.

However, Affin Investment Bank is maintaining the banking sector as “overweight,” saying that its health remains sound, as reflected by sufficient capital adequacy ratios and healthy loans growth even through 2008-2009. This was aided by accommodative monetary policy.

“Drawing from the share price behaviour in the 2008 financial crisis, there are still more downside risks, ranging from 20% to 54% for Malaysian banking stocks, although fundamentals are expected to be largely intact.

“No doubt, we acknowledge the reality that the sell-down in equities has more do to with fear and jitters, and in fact, could be uncontrollable when irrationality sets in,” it said.

OSK says Malaysian banks are largely domestic-driven and to a certain extent, regional-driven. Given the resilient domestic economy, the earnings for the banking sector are unlikely to be significantly dampened by the external environment.

Meanwhile, Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose expressed shock at how markets reacted to developments recently.

He said, there didn't seem to be an answer to the problems in Europe as the debt crisis had a contagion effect on the countries with Italy being the recent victim.

According to him, when the West is down, Asia will be impacted since the region is still very much exposed to the West via exports.

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