Sept. 3 – According to a recent report measuring financial vulnerability published by Bank of America Merrill Lynch (BofAML), Singapore, Malaysia and India are among the most financially vulnerable Asian countries based on their surprisingly low scores.
The scoring factors used in the report are based on ten different aspects, including:
- Excessive real credit growth;
- The gap between credit and economic growth;
- Returns on financial stocks; and
- The state of the current account.
BofAML has also stated that a number of Asian markets have fallen to levels not seen since 1997, just prior to the Asian Financial Crisis. The bank’s analysts explained, however, that “elevated financial vulnerability is often, but not always associated with currency and/or banking crises.”
In a bit of surprising news, Singapore – a country generally thought of as a strong economic power with a current account surplus – has scored fairly badly across the board and was among Asia’s lowest scoring countries. The areas where the country scored poorly included real loan growth and loan growth minus industrial production (the lowest in these two categories throughout all of the Asian countries presented in the report).
There is also the potential for the housing bubble to burst, as property prices in the country have risen rapidly due to low interest rates.
However, BofAML does not foresee any threat of a financial or currency crisis due to strong factors such as Singapore’s current account surplus, a lack of short-term external debt and strong capital buffers in its banking system. Further, the Singapore dollar is expected to remain isolated from the turbulence that is affecting other Asian currencies, and has even recently hit an all-time high against the U.S. dollar.
In a stroke of further good luck, Mitul Kotecha, head of global foreign-exchange strategy at France-based retail banking group Credit Agricole, has even gone as far as describing the Singapore dollar as being “perceived as more of a safe haven relative to other currencies.”
The BofAML report mentioned China, Indonesia and Hong Kong as areas of concern as well. Meanwhile, Korea, Taiwan and Thailand were viewed as areas with much less financial vulnerability.
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