The deleveraging process of the European banks may have an impact on the Asian economy in the short term, but the issue has been an "overblown" one, a senior analyst said.

Speaking at a press briefing in Singapore on Tuesday, Geoff Lewis, global strategist at J.P. Morgan Asset Management, said the problem is manageable as the European banks are unlikely to pull out.

EUROPEAN BANKS PULLOUT FROM ASIA UNLIKELY

European banks do have a significant share of the banking market in Asia, with players from the United Kingdom accounting for a large part of pie, Lewis said.

It is estimated that foreign banks have about 30 percent of the banking market in the OECD (Organization for Economic Co-operation and Development) economies and 50 percent of the market in the emerging economies, respectively.

The International Monetary Fund Deputy Managing Director Zhu Min has said in early January that the deleveraging process of European banks will have a pretty serious impact on Asia.

The banks will be forced to pull capital out of Asia when they try to clear their debts, thereby leading to volatility in the equity and currency markets. They will be less to grant loans, too, he said.

"The banking deleveraging will put pressure on the syndication, trade financing, and shipping and aviation loans," he said.

However, Lewis said on Tuesday that European banks have about 1. 682 trillion U.S. dollars in Asia excluding Japan, with 939 billion U.S. dollars from U.K. banks.

This means the European banks have about 13 percent of the banking market in the region. If the U.K. banks are excluded, the other European banks have only 4 percent of the market share.

The U.K. banks should be excluded on the ground that some of them, including banking giants like HSBC and Standard Chartered, are essentially local banks despite their being headquartered in the U.K.

"They are pretty much local banks with local deposit bases. So they are not going to pull out of Asia. No way," Lewis said. "This has been overblown as an issue."

OVERBEARISH PREVIOUSLY

Lewis also said that people might have been overbearish during the period of time in late 2011 when the negative news came out to give an impression of a huge dark cloud over the world economy.

An investor confidence index released on Tuesday by J.P. Morgan Asset Management showed that the retail investors were becoming more pessimistic in their investment outlook in December compared with six months earlier.

The J.P. Morgan Investor Confidence Index, based on an survey conducted in December, slid to 86 from 121 in July 2011 and December 2010.

But Lewis said the sentiment is gradually improving from the period of over bearishness late last year, despite the uncertainties in Europe.

"I think what is surprising is the speed at which the economic data have been improving. In the earlier days ... there were a lot of bad news coming out. Everybody was saying 'well, the risks are to the downside.' We felt it was too negative," he said.

There were even discussions that Germany is showing signs of slowing down.

Lewis said that the United States unemployment data has improved by 1.5 percentage points over the past 12 months and the gross domestic product data is also pointing to a good start in the first quarter.

The move by the European Central Bank to offer a huge amount of cheap loans to European banks was in effect a "quantitative easing, " he said.

"I think it is a big bazooka. People just didn't realize that it was a bazooka. Now it starting to getting traction," he said.

The interest rates in Europe are coming down, though not in a straight line, but it is already showing that something has changed. If the interest rates continue to come down, the investor confidence will gradually improve this year, he said.

STEALTH RALLY

Lewis said the year 2012 could a year of "stealth rally" as the market sentiment gradually improves, though the momentum seen in the recent weeks is unlikely to be sustained throughout the year.

Brian Tan, head of retail sales, J.P. Morgan Asset Management ( Singapore) Limited, also noted that it is basically consensus now that China will have a "soft landing."

He said the outlook for the regional equity markets will depend on the news outflow, and the base condition is that there is still the uncertainties in Europe.

The Singapore government has been cautious about the outlook of its economy, projecting a growth of between 1 and 3 percent for this year. However, some private sector analysts have said that the government was too pessimistic.

Robert Prior-Wandesforde, director of non-Japan Asia economics at Credit Suisse, said recently that he expected the economic growth to be at the upper end of the official range, though the inflation momentum is expected to be still significant given the tight labor market.