Across The Border

Trump’s trade U-turns are good news for Asia’s banks

HSBC and Standard Chartered among lenders benefiting from healthy transaction banking revenues as trade figures surge

PUBLISHED : Sunday, 23 April, 2017, 4:33pm
UPDATED : Sunday, 23 April, 2017, 10:04pm

“Donald Trump’s policies will be good for banks” was an oft noted remark a few months ago.

In Asia this prophecy may be starting to come true, though not in the way that anyone would have expected; for it is a surprising surge in regional trade that appears to be boosting lenders’ prospects – something few would have forecast when Trump rode to election glory on the back of a campaign that had protectionism at its very core.

Analysts say it is the correlation between overall trade volumes and revenues from transaction banking products that is improving the outlook for lenders in Asia, and particularly those in Hong Kong.

World trade growth is recovering quickly and activity in North Asia (ex South Korea) and India is solid
Mark McFarland, Union Bancaire Privée

“Both Standard Chartered and HSBC have approximately 30-40 per cent of revenues geared towards transaction banking,” said Bernstein analysts in a report on Friday, entitled “Have you seen the latest Asian trade numbers?”

As such, the fact that regional trade figures have grown strongly in the first part of this year is good news for those two banks, as well as others that are heavily geared towards servicing regional trade.

Of the two lenders, it is particularly beneficial for Standard Chartered, the analysts said, since the bulk of its trade financing is done in Asia, unlike HSBC for which Asia makes up about 50 per cent of its footprint.

Senior management at Bank of China Hong Kong, one of Hong Kong’s three currency-issuing banks, listed anti-globalisation sentiment as among their key risks for 2017 when they announced their full-year earnings last month. But they too are set to benefit from the rise in regional trade as part of their expansion into Southeast Asia.

In March, China reported export figures that were 16.4 per cent higher year-on-year in US dollar terms, much stronger than the market consensus of a 4.3 per cent growth rate.

“China’s export outlook will likely remain strong in the near term,” said economists at ANZ in a report on the figures.

Indeed ANZ itself is likely to benefit from an increase in regional trade, along with other major players in trade financing in the region such as Citi and DBS.

China’s export outlook will likely remain strong in the near term
ANZ economists

In Asia as a whole, imports and exports were up 22 per cent in February – the most recent month for which figures are available – from a year ago, according to the World Trade Organisation.

“World trade growth is recovering quickly and activity in North Asia (ex South Korea) and India is solid,” said Mark McFarland, chief economist Asia, Union Bancaire Privée, in a note. “Pricing power continues to improve, albeit from a low base.”

Few would have expected this back in November when Donald Trump entered the White House promising to label China a currency manipulator “on day one”, and threatening to impose tariffs that analysts at the time said might start a trade war.

It is too early to be overly optimistic; predicting what the US president will do next is seldom a wise move. But certainly recent U-turns have been beneficial for regional trade, not least last week’s symbolically important declaration that China was not manipulating its currency.

“Technically he broke this promise on day one, but he has now formally walked it back,” said

Johan Jooste, chief investment officer at the Bank of Singapore in a report.

“It is possibly a signal that the entire Chinese relationship is being reconsidered in the White House. Greater circumspection on the part of the US when trying to alter Chinese behaviour on the trade front is a good thing.”

Xi, Trump agree on trade, military talks but appear at odds over North Korea

The ANZ economists said: “The risk of an explicit trade war has waned subsequent to the Trump-Xi Summit [earlier this month in Mar a Lago].

“Both sides have agreed to a new 100-day plan for trade talks after their bilateral meeting last week. The US has also attempted to bargain with China on trade in exchange for support in geopolitical issues.”

North Korea is the most significant of these geopolitical issues, though the US-Russian relationship is another factor.