Legendary Swiss investor Felix Zulauf, who runs Zulauf Asset Management, has warned that Singapore’s largest banks are at risk of massive capital outflows if the Chinese economy experiences a hard landing, which he expects will happen this year.
“We are in a down cycle that will end with crisis and calamity. China in today’s cycle is what US housing was during the financial crisis in 2008,” said Zulauf, who was speaking at the annual Barron’s roundtable.
Said Zulauf, “Singapore’s banking-sector loans have grown dramatically in the past five or six years. Singapore is now losing capital, which means the banking industry is losing deposits.” He added that this would probably cause carry trades to go awry, resulting in steep losses for those who had borrowed heavily to buy higher-yielding assets.
Zulauf expects that a banking crisis will first develop in Singapore, before spreading eventually to Hong Kong.
According to Australia’s Financial Review, other analysts have also said that Singapore’s three largest banks – DBS, Oversea-Chinese Banking Corp and United Overseas Bank – could suffer a sharp spark in problem loans if the Chinese economy brakes sharply.
After all, all three are big lenders in the Asian region, with significant corporate loan books. The three banks could face a big jump in their problem loans if there is a spate of defaults by debt-laden Chinese companies, or from other companies in the region whose earnings are already tumbling as a result of flagging Chinese growth.