How Indian, other Asian banks can benefit from bank crisis in US?

A Citibank analysis of global financial conditions shows that Asian financial markets have strengthened less than in the US, with most Asian currencies gaining against the US Dollar. An index of financial stocks in the region, excluding Japan, has risen since March 10 – the day the Silicon Valley bank collapsed – compared with a US banking index down about 10% over the same period.

“We think Asia still remains relatively well insulated,” said Johanna Chua, managing director and head of Asia-Pacific Economic market analysis in the city. “A US-centric recession means the US dollar will track lower, which is more supportive of capital flows to Asia.”

Economists say one factor working in Asia-Pacific’s favor is a generally soft pivot in monetary policy, with central banks in Australia, South Korea, Indonesia and India halting their tightening cycles. China, with its easy monetary policy and reopening from Covid, is the top attraction for investors.

This is reflected in the $5.5 billion in funds that flow into emerging-market equity fund In the four weeks to the end of March, led by Asia, according to TD Securities data citing EPFR Global data. Over 70% of that money went to China. Whereas, developed market stocks suffered losses. Net Outflow of $8.6 billion, with the US being the most affected.

“Investors are still looking at EM Asia as the preferred region, followed by Europe and then perhaps the US,” said David Chao, global market strategist for Asia-Pacific at Invesco. asset Management told Bloomberg Radio on April 4. “If you think the Fed is going to hold off on raising interest rates, it certainly will bring capital flows back to EM Asia.”

The end of the Fed hike cycle amid financial stability risks and signs of cooling demand could aid Asia by easing the pressure of a stronger dollar on external finances and reducing the greenback’s appeal as a safe haven.

The Asian Development Bank said this week that Asia’s developing economies, led by China, are poised for faster growth and slower inflation this year and next, while advanced economies are contributing to a darker global outlook.

China’s rebound is expected across the region, which also benefits from supply-chain diversification, rising commodities and the lack of excessive credit growth, said Frederick Neumann, chief Asia economist at HSBC Holdings Plc in Hong Kong.

Citi’s Chua believes Hong Kong and Thailand, which stand to benefit from China’s reopening, and domestic services-led economies such as India and the Philippines “look relatively more resilient” to global growth shocks. “Small, open economies” such as Singapore, Vietnam, South Korea, Malaysia and Taiwan would be more sensitive to those spillovers.

The banking turmoil could also mean that Asian tech money invested in the US could now start coming back.

“Within Asia, I think Singapore will be the major gainer,” said Prashant Newnaha, Macro Strategist at TD Securities.

Still, there are risks. Recent gloomy factory data from China dented confidence about the pace of the country’s rebound. Invesco’s Chao said China’s deteriorating relations with the US increase the potential risk of investing in places such as Hong Kong and Taiwan.

Furthermore, Asia is not completely immune to the financial volatility that emanates from the US.

“The outlook really depends on whether things stabilize in Europe and North America,” said Jonathan Kearns, chief economist at Sydney-based investment management firm Challenger Ltd and a former Reserve Bank of Australia official. It will also spill over into Asia.”

The text of this story is published from a wire agency feed without any modification. Only the headline has been changed.