Bank Watch: Global Bank Investors Look East
Ken Odeluga | Nov 01, 2017 10:27
As U.S. and European banks wind up another mixed earnings season, investors are looking east for more sure footed growth among global lenders.
Mixed growth in U.S. and Europe
For the world’s giant banks, the third quarter has turned out as mixed as any during a low-rate environment that is only beginning to disperse, as costly conduct issues persist. Whilst shareholders have been more exacting about the sustainability of apparent growth, there have been no ‘car crashes’ of the kind that marred earlier 2017 quarters for the likes of HSBC (LON:HSBA), Deutsche (DE:DB1Gn) and others. And progress amongst dominant lenders can’t fairly be described as shabby overall.
Signs of health
For the most part, moderate declines by shares of some U.S. and European banks after earnings were due to lukewarm growth. For instance, neither JPMorgan (NYSE:JPM) nor Citigroup (NYSE:C) showed much sign that earnings momentum would go up a gear anytime soon. Elsewhere though, both Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS) pulled away from the pack as BofA joined JPM in an aggressive play for loan markets dominated by a Wells Fargo (NYSE:WFC) and MS posted the only rise in Q3 trading in the bulge bracket. Wells, distracted by the fallout from its sales scandal did provide the quarter’s outright decline in earnings quality. But the overall impression of progress was underpinned by RBS (LON:RBS), an erstwhile laggard, reporting a third straight quarter of rising profits.
Banks rise in the east
That said, a peek outside the transatlantic world view quickly reveals bigger chunks of surefooted growth to the east. Chiefly, China’s large banks largely kept pace with rivals overseas. Among China’s Big 5—AgBank (HK:1288), Bank of Communications (HK:3328), CCB (HK:0939), ICBC (HK:1398), and Bank of China Ltd (HK:3988)—four reported higher quarterly profits and easing pressure in bad loans. Of course a corporate debt to GDP ratio that is now approaching 200% remains the most glaring risk to an investment in such banks—aside from state interference. But net assets amongst China’s major banks are up least 100% since 2010 with no implosion of non-performing loans in sight. It is Beijing’s efforts to limit economic exposure to long-standing risks that has underpinned earnings. The very largest lenders in the world’s No. 2 economy benefit mechanically when liquidity tightens for smaller competitors and others in the shadow sector.
Lucky 8
This is a key factor underpinning investor sentiment on leading Chinese banks. 8 of the 10 banks currently ranked most highly by European investors are Chinese, according to a City Index analysis summarised below. We did a multifactor ranking of banks with a $50bn market value or higher. Our factors included holdings by large investors, earnings quality, intrinsic value, share price momentum, and analyst rating changes. Out of a list of 47, the only top 10 North American lender was Scotiabank. It is leading Canadian lenders as their domestic economy grows at its fastest pace for years. Contrast that with UK-based HSBC, in many ways Europe’s best bank recovery story, scraping in at 50. Barclays (LON:BARC) was predictably last on a cross Atlantic view, sealing its reputation as the least-liked major bank stock in Europe this year after growth retreated almost across the board in Q3.
Get The App
Russia rebound
To be sure, recovery plays account for a large swathe of what currently looks attractive to investors in large banks. This helps explain why Sberbank (LON:SBNCyq), the biggest universal lender in Russia, tops our ranking. Record profits of $3.14bn in its most recent quarter and a valuation depleted by Russia’s currency crisis have encouraged yield-hunters to discount country risk. It’s a reminder that as barriers to investment around the world fall, there are fewer reasons to settle for tortuous equity growth in Europe and the U.S. In turn, as appetite for bank equities heads overseas, the hurdle for a stronger re-rating of lenders’ shares in Europe and the States will be higher.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Original post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.