Analysts keep faith in emerging market banks
While some pockets of the banking sector suffer, others continue to prosper
A$2 billion (Dh7.34 billion) corruption scandal is rocking India’s banks. Russia has taken over some of its biggest private lenders, while Latvia’s No 3 bank has been shut down amid US money-laundering accusations. Turkish financiers are under attack from Erdoganomics and warning signs are flashing for a Chinese bank crisis.
Then, why have earnings estimates for developing-nation banks jumped to a record?
Analysts have increased their weighted average profit forecast for the MSCI Emerging Markets Banks Index by 6.5 per cent this year, taking it above a previous high in 2013. In other words, they expect the firms’ income in the next 12 months to be 22 per cent higher than that in the past 12 months.
That seems to ignore the mounting stress on emergingmarket banks: India is locking the stable after horses bolted as it struggles to punish loan defaulters who left the country. The Bank for International Settlements has identified China among economies most at risk of a banking crisis. Negative news flow from Russia and Latvia and Turkey shows no sign of abating.
Yet, that hasn’t stopped the banks index from rallying 10 per cent this year. Strategists from Renaissance Capital to Newton Asset Management say emerging markets are so heterogeneous that idiosyncratic risks don’t alter the big picture. Many developing nations have a low credit penetration despite a surge in consumer demand. That means while some pockets of the banking sector suffer, others continue to prosper.
This is how money managers view some of the key markets:
“We see a big difference in the condition and outlook for stateowned banks versus the private banks,” says Sophia Whitbread, a portfolio manager at Newton Global Emerging Markets Fund in London.
“For the state banks, whereas the recent recapitalisation was helpful, we don’t believe it was enough to do more than ‘fill a hole’, and will not solve the lack of growth in credit. Our positioning in India is focused upon the consumer sector and very selectively within the private banking sector, where we like the affordable mortgage section, which has received significant policy support.”