Singapore Banks Face Earnings Drop, Asset Woes - MS

[Dow Jones] Singapore banks are best avoided for now as Singapore is confronting its deepest recession ever with economy expected to contract 3.5% in 2009, says Morgan Stanley. “A small open defenseless economy lacking indigenous domestic demand, the worst is to come,” warns broker. Expects Singapore bank sector earnings to decline 20% in FY09 and not recover until at least 2011, warns asset quality is key stress point, cycles generally last two years. Adds while valuations look undemanding, consensus earnings estimates still too optimistic. Reiterates Cautious view on sector, rates all 3 banks Underweight with OCBC (O39.SG) and UOB (U11.SG) least preferred as says they trade at a premium; “stay Underweight and play the relatives in what looks like an ugly range-bound year.” OCBC last +2.2% at S$5.03, UOB +4.0% at S$12.00 vs STI +3.7%. DBS (D05.SG) outperforming, +6.4% at S$8.92; trader at local house says stock looks oversold, hopes of further U.S. bailout measures offering support.