- Equities: Banks are direct beneficiaries of rate hikes
- FX: DXY to stabilise after recent depreciation; EUR back inside its 0.99- 1.01 range
- Rates: ECB finally gets serious about combating inflation; Key interplay between ECB vs Fed policy
- Thematics: Further regulatory easing for China’s Internet sector in sight
Interest rate hikes are increasing among ASEAN economies, catching up with the US Fed’s hawkish stance. Indonesia and Thailand have delivered their first hikes since the pandemic, while the Philippines and Malaysia have hiked less than the Fed. We believe more tightening will be needed; improving policy differentials should help contain outflow risks and maintain financial stability since many regional central banks have already expended a fair amount of FX reserves in defending their currencies. Central banks would also be less behind-the-curve in tackling inflation as second round effects of inflation have started to kick in, amid a post-pandemic demand recovery in ASEAN economies.
ASEAN banks should benefit from interest rate hikes as net interest margin (NIM) looks to expand further. Banks with higher Current Account Savings Account (CASA) ratios should benefit the most. We believe valuation for ASEAN banks would be able to better ride through the negative feedback on equities in a rising interest rate environment. Earnings momentum should be positive against a backdrop of earnings downgrades in other industries due to global macro headwinds.
Interest rates in Singapore tend to follow US Fed rates closely. With our view that Fed rates will reach 4% by the end of this year, we expect Singapore Banks to benefit from higher interest rates and keep up their positive earnings momentum. We estimate that Singapore Banks will see c.3-8 bps increase in NIM for every 25 bps increase in rates, resulting in 3-6% earnings uplift. Economic reopening and higher inflation would continue to support nominal loan growth, especially mortgage loans. We note that despite macro uncertainties and the risk of rising interest rates, property buyers are back for projects with attractive attributes. This can be seen from the more than 10% rise in property prices in the core central region since two years ago and the robust sellthrough rates of recent property project launches in Singapore.
Download the PDF to read the full report which includes coverage on FX, Rates, and Thematics.
Topic
This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only. This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank.
This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.
The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.
All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you. DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein. In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.
Any information relating to past performance, or any future forecast based on past performance or other assumptions, is not necessarily a reliable indicator of future results.
If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version.
This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
If you have received this communication by email, please do not distribute or copy this email. If you believe that you have received this e-mail in error, please inform the sender or contact us immediately. DBS Group reserves the right to monitor and record electronic and telephone communications made by or to its personnel for regulatory or operational purposes. The security, accuracy and timeliness of electronic communications cannot be assured.