Welcome to Morningstar. I'm Holly Black. With me is Michael Wu. He is an analyst at Morningstar
in Hong Kong. Hello. Hi, Holly.
So, one of the areas you look at with your coverage is banking stocks and these are super
popular with investors for a lot of reasons. I think one of the key ones is that they are
reliable dividend payers. But what are reasons to consider investing in Asian banks?
Yeah. The key aspect for the Asia banks is the long-term growth prospects that the banks
are exposed to. For the Hong Kong banks specifically, it is to the Greater China region and the
Singapore banks is a similar exposure, but on top of that they do have emerging markets
exposure as well which is benefiting from the favorable demographic which will underpin
long-term economic growth. For the banking system in Hong Kong and Singapore, both benefit
from a stable regulatory regime and a stable currency regime as well. And fundamentally,
for the banks, they do have good underwriting standards, strong capital position and to
your point, that would support their sustainable dividend payment.
And how has the prospects for the sector changed under the Covid-19 crisis if at all?
For the Covid situation specifically, for the banks, it's similar to the global banks
in that there will be a slowdown in economic growth which will result in a lower profitability
as the quality should deteriorate and that will result in high credit cost. But we do
think that is manageable. Government response has been swift. And with that we do expect
that the improvement in Covid situation will lead to an early improvement in economic growth
relative to developed markets. So, one of your top picks is OCBC. What is
it that you like about that stock? Yeah. For OCBC, overall the Singapore banking
system is dominated by the three Singapore banks, OCBC is one of them. For them, they
do benefit from a cost advantage from a 20% market share in Singapore dollar deposit.
And with the Covid situation there is concern over asset quality. Again, we believe this
is manageable for the bank. And in the longer term, we do like the strategy where there
is an insurance arm in Great Eastern, which is the largest insurer in Singapore, as well
as a strong private banking franchise in Bank of Singapore. So, it does provide the bank
with diversified income. And we believe this was a key reason why the share price of the
bank has outperformed its peers year-to-date. The bank is trading on a 20% discount to our
fair value with a dividend yield of 5.5% which we think is attractive.
And you mentioned it has an insurance arm and that's a real growth area in Asia because
of demographics and growing wealth. So, another of your top picks in this sector as well and
that's Ping An Insurance. What is it you like about this stock?
That's right. Our top pick in the non-bank financials area is Ping An Insurance. We do
expect Ping An to benefit from the long-term growth themes in that there is a rising income
wealth in China and that should drive demand for insurance products. There's also under-penetration
of insurance products in China and obviously the aging population and greater awareness
of critical illness do underpin demand for insurance products in the long term. Specifically,
for Ping An, we do like the strong management execution where they have been able to acquire
customers at a rapid pace. They also have a diversified distribution platform. Besides
online they also have an agency network as well as Ping An Bank which they can explore
and distribute the insurance product set. We do believe that the insurer is trading
on a 20% discount on fair value, it is attractive. Michael, thank you so much for your time.
For Morningstar, I'm Holly Black.