Published September 29, 2008

M'sian banks in for rough ride ahead: OSK-UOB

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(KUALA LUMPUR) Malaysian banks, which have been spared much of the fallout from the US loans crisis, have a rough ride ahead as bad loans are set to creep up as domestic economic growth loses steam, OSK-UOB Unit Trust Management said.

'Infrastructure sector is an area where the govt wants to support, in order to keep the economy growing.'
- Jason Chong,
OSK-UOB chief investment officer

OSK-UOB unit trusts are currently underweight Malaysian banks, chief investment officer Jason Chong said on Friday.

None of the local banks have direct exposure to sub-prime mortgage assets in the US and Europe. But this is unlikely to make the banks more attractive than their regional peers.

'The banks are not directly affected by the US financial crisis but banks in general will be affected by the economic slowdown and I don't think we have seen the impact of that yet on the Malaysian financial sector, which I do expect to see,' Mr Chong said.

'I am not saying that things are as bad as the (1997-1998) Asian financial crisis but I think in any economic slowdown, you will see an increase in bad debt. It is only natural.'

Big banks such as Public Bank have already predicted industry bad loans will edge up next year as slackening economic growth and high inflation hit consumer spending.

Banks have slightly outperformed the broader market so far this year.



The composite index has fallen 29 per cent while top bank by assets, Maybank has dropped 25 per cent, No 2 Bumiputra-Commerce has fallen 28 per cent and third-ranked Public Bank has lost just 10 per cent.

The Malaysian market as a whole is also likely to lag behind its regional peers due to domestic political uncertainties but Mr Chong said he sees 'a clear earnings catalyst' that could lead to construction and building material stocks being re-rated.

Infrastructure stocks were the hardest hit after a March 8 general election ended a long-period of political stability for the Southeast Asian country of 27 million people when the opposition scored its biggest election success, winning over a third of the seats in parliament.

'That (infrastructure-related sector) is an area where the government wants to support, in order to keep the economy growing,' said Mr Chong.

'Stocks like Gamuda and IJM Corp ...the share price has been bashed down, valuation has also come down a lot, a lot of them are trading at low- teen or single-digit PE.'

But plantation stocks such as Sime Darby and IOI Corp may not yet have hit the bottom. Malaysia is the world's second largest palm oil producer and the companies are a big part of Bursa Malaysia. -- Reuters