Hong Kong and Malaysia loans stagnate
Hong Kong’s domestic loans growth fell 1.27% YoY and grew 0.32% MoM in August. It recorded the first drop YoY in August since March 2016.
Malaysia’s domestic loans growth saw its lowest increase of 2.49% YoY in August and fell 0.16% MoM in August. This was its first drop MoM in August for the year. Notably, the Malaysian Ministry of Finance recently announced the Financial Management and Resilient Programme (URUS) for borrowers in the bottom 50% (B50) income group. Facilities to be provided include interest exemption for three months and lower instalment amounts for up to 24 months, as well as a lower interest rate, application start from 15 November 2021 till 31 January 2022.
Volatility rose as Singapore enter the Stabilisation Phase
Preliminary SDAV for October increased 8% YoY to $1,143mn (Figure 6), as Singapore tightened COVID-19 restrictions and community cases continued to rise. VIX averaged 17.9 in October, down from 19.8 in the previous month but a surge in Covid-19 cases community cases caused it to remain high.
Likewise, the top five equity index futures turnover saw an increase of 9.9% YoY in October to 13.2mn contracts (Figure 8) mainly supported by higher trading volumes of its FTSE China A50 Index Futures and its FTSE Taiwan Index Futures. Notably, Nifty 50 Index Futures increased 6% MoM to 2.3mn while FTSE China A50 Index Futures contracted 21.4% MoM to 7.3mn.
Foreign exchange trading on the SGX increased 3% YoY to 2.3mn contracts in September. China’s economic rebound continued to spur strong institutional demand for risk management of the renminbi (RMB). Reflecting this, SGX’s USD/CNH Futures jumped 15% YoY to 921,663 contracts. Month-end open interest in this contract, the world’s most widely-traded international RMB futures, increased 5% YoY to US$91.9bn.
HKEX launches MSCI China A50 Connect Index futures
On 18 October 2021, HKEX launched its China A50 Connect futures contract, which is based on the the MSCI China A 50 Connect Index, which selects 50 names from among the largest stocks listed in Shanghai and Shenzhen available via Stock Connect. It includes China’s top liquor maker Kweichow Moutai, electric car battery maker Contemporary Amperex Technology and solar panel materials maker LONGi Green Energy Technology. This new futures contract is a direct competitor to SGX’s existing FTSE China A50 Index futures which accounted for approximately 10% of SGX’s total revenues and 29% of derivatives revenue for FY21.
Maintain OVERWEIGHT. We remain positive on banks. Banks traded above 1.4x P/B over the last five years and are currently close to or below our P/B targets. Our price targets are supported by improving ROEs as allowances reverse in FY21e. With total allowance coverage being over 30% above the MAS’ regulatory limit, we believe there is further room for GP reversions in 2021. This would boost earnings.
We also believe Singapore banks could pay special dividends when the macroeconomic outlook stabilises. Capital ratios of 14.2–17.5% are higher than the banks’ optimal operating range of 12.5–13.5%. This is supportive of more aggressive capital optimisation. We believe the banks will also look for M&A opportunities with their excess capital.