KUALA LUMPUR: RHB Investment Bank Bhd Research (RHB Research) believes that banking stocks in Indonesia, Malaysia, and Singapore are the ideal investments to remain agile amid external market volatilities.
"We think market volatility will likely persist amid uncertainties with respect to US policies and US Federal Funds Rate (FFR) trajectory, among others."
"Closer to home, though, Asean domestic economies should remain resilient and help anchor sector earnings. Singapore's and Malaysia's bank stocks strong performance last year means returns should be more modest this year. Coupled with the ongoing volatility, we advocate investors to adopt a tactical approach and recommend a barbell strategy of Indonesia banks for growth and Singapore banks as a defensive strategy," the firm said in its regional update on banks today.
It said Indonesian banks were laggards last year amid volatile flows and earnings disappointment (tighter liquidity and asset quality issues faced by certain banks).
"We expect the situation to stabilise this year, leading to a rebound in earnings growth – highest among the markets we cover. For Singapore and Malaysia banks, however, mean reversion coupled with a moderation in earnings growth this year suggest returns from Singapore and Malaysia bank stocks should be more modest," it said.
RHB Research added however that Singapore and Malaysia banks offer defensive earnings and attractive dividend yield, and further capital management initiatives should help underpin total returns this year.
• Liquidity and capital management likely key focus in upcoming results. We see liquidity (Indonesia and Malaysia) and capital management (Singapore and Malaysia) as the two likely key areas of focus in the upcoming results. For Indonesian banks, an improved liquidity outlook will help strengthen the net interest margin and earnings recovery thesis.
In Malaysia, system loan-to-deposit ratio (LDR) is approaching previous highs and it remains to be seen if banks have room to manage down further deposit costs.