Investment opportunities available amid foreign banking turmoil: Analysts

PETALING JAYA: While the recent bankruptcies in the international banking sector have raised concerns, not all banks are exposed to the same risks, and well-managed institutions may be unfairly punished by the market, said analysts.

Phoenix Capital Advisory founder & CEO John Lim (pix) said that the global banking crisis presents unique opportunities for investors who can identify undervalued assets and capitalise on market overreactions.

“In the wake of these bankruptcies, investor sentiment towards the banking sector might be negatively affected, which could lead to short-term price declines for some banking stocks. However, not all banks are exposed to the same risks, and several well-managed institutions may be unfairly punished by the market,” he told SunBiz.

According to Manulife’s investment note dated March 16, the current market volatility is creating investment opportunities for well-capitalised banking companies with limited delinquencies and strong balance sheets, despite market volatility and potential industry consolidation.

It explained that the market action is causing dispersion among select bank stocks, with some experiencing additional selling pressure and others showing stabilisation.

“In our view, many of the issues faced by the now-shuttered banking entities are likely specific to these institutions due to their high concentration in industries that were facing significant funding, regulatory, or legal pressures. Some banking stocks that are coming under pressure today don’t face that same issue, having customer bases that are diversified across many industries, which reduces their liquidity risk,” it said.

Additionally, it believes that most banks have assets that have benefited from higher interest rates, “Undoubtedly, deposit pricing pressure accelerated in the fourth quarter as the Fed continued to raise rates.”

It also expects there to be industry consolidation as some competitors are taken out of the market, “although we can’t say for certain how long investor concerns around regional banks might persist, we believe this spate of volatility presents an opportunity to allocate toward well-capitalised institutions that have rate-hedged portfolios and a diverse deposit base.

“In our view, banks that can maintain a strong liquidity profile and benefit from the higher rate environment have the potential to generate a strong return on equity,” it said.

The World Economic Forum reports that fears of a global banking crisis have sent shockwaves through financial markets.

“Fears of a global banking crisis increased following a slump in the share price of Swiss bank Credit Suisse and the collapse of US lender Silicon Valley Bank,” it said.

Large US banks injected US$30 billion (RM135 billion) in deposits into First Republic Bank last Thursday to shore up its liquidity, which went some way towards calming panic about a global banking crisis.

Banking stocks globally have taken a hit since Silicon Valley Bank collapsed due to bond-related losses that piled up when interest rates surged last year. Stock markets subsequently fell around the world, with banking stocks experiencing particularly large drops.

“The turmoil in banking stocks also triggered drops in yields for US Treasuries and Eurozone bonds, and gold prices renewed their recent rally as investors sought safe havens,” it said.