Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

President Maithripala Sirisena pulled off a constitutional coup by dismissing PM Ranil Wickremasinghe on 26th October, replacing him with former President Mahinda Rajapakse. Wickremasinghe claims to still command a majority in parliament, and has questioned Sirisena's constitutional right to dismiss an elected prime minister. The 19th amendment to the constitution (passed in April 2015) says a prime minister cannot be dismissed as long as his cabinet is functioning and he has not resigned -- although prior to that amendment, the president did have the right to appoint the prime minister. There is now a constitutional impasse, but Sirisena has "prorogued" parliament (postponed the next sitting) until 16th November, to give Rajapakse more time. While the Sri Lanka economy grew much more strongly during the Rajapakse years, that growth was accompanied by fiscal profligacy -- and widening twin deficits. The fiscal deficit reached 9.9% of GDP in 2009 (and was 7% of GDP in both 2008 and 2010), and it was still 7.6% of GDP in 2015 (the year that Rajapakse lost the presidential election). The current account deficit peaked at 9.5% of GDP in 2008, but was still 5.8% of GDP in 2012 before being reined in. This year, higher oil prices caused the current account deficit to widen sharply -- to an estimated 4% of GDP in 1H 2018 (from 2.6% in 2017). The emerging market currency sell-off spread to the LKR too, with a 10% depreciation in the last 2 months (September-October); attempts at defending the currency proved futile, and Sri Lanka's foreign reserves fell to US$6.35bn in Sept 2018 (just over 3 months' import cover). The Wickremasinghe government took a US$1.5bn EFF loan from the IMF in June 2016, which required some fiscal and monetary austerity. That has contributed to an improvement in the macroeconomic balances, with inflation down to 4.3% YoY in September (and 3.1% in October 2018), while the policy interest rate remains at 7.25%. Real GDP growth, however, has remained anaemic at 3.7% YoY in 2Q 2018. The prospect of an improvement in 2H 2018 (expected by the IMF) was jinxed by the currency sell-off. With the fiscal deficit remaining stubbornly high (5.5% of GDP last year, likely still above 5% this year despite a primary surplus), the public debt is still a lofty 78% of GDP. Keeping the IMF onside remains essential to Sri Lanka's near-term economic prospects. Rajapakse's poor human rights record is thus likely to prove a near-term obstacle, with the IMF likely to be much more wary of dealing with him than with Wickremasinghe. However, the Rajapakse-Sirisena combine will be formidable when a general election is called. We recommend that investors stay wary of Sri Lanka, but reduce their Underweight position once the dust of the current constitutional crisis settles.

President Maithripala Sirisena pulled off a constitutional coup by dismissing PM Ranil Wickremasinghe on 26th October, replacing him with former President Mahinda Rajapakse. Wickremasinghe claims to still command a majority in parliament, and has questioned Sirisena's constitutional right to dismiss an elected prime minister. The 19th amendment to the constitution (passed in April 2015) says a prime minister cannot be dismissed as long as his cabinet is functioning and he has not resigned -- although prior to that amendment, the president did have the right to appoint the prime minister. There is now a constitutional impasse, but Sirisena has "prorogued" parliament (postponed the next sitting) until 16th November, to give Rajapakse more time. While the Sri Lanka economy grew much more strongly during the Rajapakse years, that growth was accompanied by fiscal profligacy -- and widening twin deficits. The fiscal deficit reached 9.9% of GDP in 2009 (and was 7% of GDP in both 2008 and 2010), and it was still 7.6% of GDP in 2015 (the year that Rajapakse lost the presidential election). The current account deficit peaked at 9.5% of GDP in 2008, but was still 5.8% of GDP in 2012 before being reined in. This year, higher oil prices caused the current account deficit to widen sharply -- to an estimated 4% of GDP in 1H 2018 (from 2.6% in 2017). The emerging market currency sell-off spread to the LKR too, with a 10% depreciation in the last 2 months (September-October); attempts at defending the currency proved futile, and Sri Lanka's foreign reserves fell to US$6.35bn in Sept 2018 (just over 3 months' import cover). The Wickremasinghe government took a US$1.5bn EFF loan from the IMF in June 2016, which required some fiscal and monetary austerity. That has contributed to an improvement in the macroeconomic balances, with inflation down to 4.3% YoY in September (and 3.1% in October 2018), while the policy interest rate remains at 7.25%. Real GDP growth, however, has remained anaemic at 3.7% YoY in 2Q 2018. The prospect of an improvement in 2H 2018 (expected by the IMF) was jinxed by the currency sell-off. With the fiscal deficit remaining stubbornly high (5.5% of GDP last year, likely still above 5% this year despite a primary surplus), the public debt is still a lofty 78% of GDP. Keeping the IMF onside remains essential to Sri Lanka's near-term economic prospects. Rajapakse's poor human rights record is thus likely to prove a near-term obstacle, with the IMF likely to be much more wary of dealing with him than with Wickremasinghe. However, the Rajapakse-Sirisena combine will be formidable when a general election is called. We recommend that investors stay wary of Sri Lanka, but reduce their Underweight position once the dust of the current constitutional crisis settles. 

Constitutional Coup Could Pave the Way to Faster Economic Growth Despite External Debt Challenge

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Hatton National Bank PLC / Equity Bottom-Up

The <a href="https://www.smartkarma.com/entities/27585" target="_blank" data-smartkarma-citation="entities:27585:1">Hatton National Bank PLC (HNB SL)</a> narrative is underpinned by a combination of a quintile 1 global PH Score™, undervalued growth as testified by both the Total Return Ratio (a dividend-adjusted PEG ratio) as well as Franchise Valuation. RSI is  low too by global standards. Combining these elements places HNB in the top decile of opportunity though traded volume is a concern.HNB is a privately-owned, commercial, bank focused on corporate and SME/micro lending and -to a lesser extent- consumer and developmental credit, leases and mortgages, and bancassurance.The banking sector in Sri Lanka is under pressure on the asset quality and capitalisation fronts though HNB carried out a US$100mm rights issue back in Q317 to fortify its capital adequacy.  System NPLs are moving higher to around 3.3% as the sector grapples with years of soaring loan growth, running at a 3-year CAGR of 20% this time last year. Loan growth and the credit growth multiplier have since moderated and underwriting standards have tightened. Agricultural portfolios are vulnerable to adverse weather conditions.Shares of HNB stand on an Earnings Yield of 20% and a P/Book of 0.8x, and are evidently influenced by traded volumes as well as macro-political concerns. FV at 11.8% is well below EM and global medians. The Total Return Ratio (a dividend-adjusted PEG factor) is an attractive 3.51x. RSI at 41 seems to indicate that the shares are neglected. The bank commands a PH Score™ of 7.1.  This reveals that the bank shows strong fundamental progression and offers a value-quality opportunity over the next 12 months.

The Hatton National Bank PLC (HNB SL) narrative is underpinned by a combination of a quintile 1 global PH Score™, undervalued growth as testified by both the Total Return Ratio (a dividend-adjusted PEG ratio) as well as Franchise Valuation. RSI is  low too by global standards. Combining these elements places HNB in the top decile of opportunity though traded volume is a concern.HNB is a privately-owned, commercial, bank focused on corporate and SME/micro lending and -to a lesser extent- consumer and developmental credit, leases and mortgages, and bancassurance.The banking sector in Sri Lanka is under pressure on the asset quality and capitalisation fronts though HNB carried out a US$100mm rights issue back in Q317 to fortify its capital adequacy.  System NPLs are moving higher to around 3.3% as the sector grapples with years of soaring loan growth, running at a 3-year CAGR of 20% this time last year. Loan growth and the credit growth multiplier have since moderated and underwriting standards have tightened. Agricultural portfolios are vulnerable to adverse weather conditions.Shares of HNB stand on an Earnings Yield of 20% and a P/Book of 0.8x, and are evidently influenced by traded volumes as well as macro-political concerns. FV at 11.8% is well below EM and global medians. The Total Return Ratio (a dividend-adjusted PEG factor) is an attractive 3.51x. RSI at 41 seems to indicate that the shares are neglected. The bank commands a PH Score™ of 7.1.  This reveals that the bank shows strong fundamental progression and offers a value-quality opportunity over the next 12 months.

HNB: Explore Temples, Go on Safari, Relax on Golden Beaches...and Check Out Cheap Banks

Sri Lanka

Hatton National Bank PLC is a commercial bank.  The Bank offers a wide range of banking, mortgage financing, lease financing, investment banking, corporate finance, insurance services, share brokering, and other financial services

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Hatton National Bank PLC (HNB SL)

Constitutional Coup Could Pave the Way to Faster Economic Growth Despite External Debt Challenge

President Maithripala Sirisena pulled off a constitutional coup by dismissing PM Ranil Wickremasinghe on 26th October, replacing him with former...

Prasenjit K. Basu

HNB: Explore Temples, Go on Safari, Relax on Golden Beaches...and Check Out Cheap Banks

The Hatton National Bank PLC (HNB SL) narrative is underpinned by a combination of a quintile 1 global PH Score™, undervalued growth as testified...

Paul Hollingworth

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52-week Range

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