Global uncertainties continue to weigh on sentiment

Manulife IM's Sue said there were possible channels through which the contagion might be transmitted to Asia.

KUALA LUMPUR: Global uncertainties continue to weigh on sentiment as markets worry about the health of the banking sector, the potential economic fallout arising from the collapse of Silicon Valley Bank and implications for central banks, which are still trying to tame inflation.

Manulife Investment Management (M) Bhd co-head of global macro strategy Sue Trinh said there were possible channels through which the contagion might be transmitted to Asia.

She said exposure appeared to be limited and while several companies within Asia’s venture capital and tech startup sectors have exposure to the affected foreign banks, they appeared to be small in scale.

“If problems in the United States and European banking systems were to become acute and investor risk aversion to spike, it’s fair to say that Asian economies with large current account deficits – and therefore are reliant on foreign capital flows – will be most affected,” she said in a statement.

Sue said domestic credit conditions are likely to tighten further.

However, lower confidence and greater risk aversion among domestic banks could result in weaker lending growth.

Broadly, the tighter credit conditions and slower global economic growth will likely increase the risk of non-performing loans.

She said the most exposed economies in the Asian region would be those that have experienced sharp increases in interest rates and a significant rise in debt servicing costs – South Korea, for instance, could be a concern.

Economies with many financial institutions having low regulatory capital could be more vulnerable, and India could be a candidate in this regard, she said.

“Tighter global financial conditions could also weigh on Asian exports as demand weakens. Economies that are particularly dependent on trade with the United States and the eurozone would be most affected – Vietnam, Malaysia, and Taiwan would fall into this category,” she said. — Bernama

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