OK, poor follow up for the name of a post after yesterday's Techity Wreckity. Domestic financial stocks have generally been struggling for the last few months or so relative to the broader market.
My position for clients has been the same for several years which has been very little domestic exposure and a lot of foreign exposure netting out to less than the S&P 500's 22%.
Many attribute the weakness to the subprime dealio but I have to wonder if a part of it too was that the slope of the yield curve, which when inverted or flat is a headwind for the sector, finally caught up to it.
Perhaps the slope of the curve contributed to the subprime which then contributed to financial stocks lagging? Maybe, maybe not.
Interestingly the part of the group that has done better than the broad sector has been the more volatile (in my opinion anyway) public exchange stocks and brokerage stocks (ex-Bear Stearns?). I think the reason for this is because as the market has been going higher investors/traders have been willing to take on the type of risk that goes with these two sub-sectors.
This divergence could last a while longer as the trend, much to my surprise, seems to still be intact.
For now I continue to prefer foreign over domestic for financials. Banks and the like are a great way to own foreign countries. Just about every foreign country has one or two big public banks.
9 comments:
AGREED. TIME TO UPDATE THE ICE CREAM PHOTO FOR A FIRE FIGHTING PHOTO..?
Roger,
Everybody and their brother is aware by now, of the subprime and related problems for US banks. What I don't have a good feel for is the impact, if any, on foreign banks; either from exposure to US credit instruments or similar situations in their own countries (e.g. Spain, UK ...). I realize that credit derivatives are not your area of expertise but do you have a "feel", opinion or even just a guess re the impact
(or lack thereof) on foreign banks?
foreign banks take on different risks, it seems. For example I have disclosed owning ANZ many time before; this bank has a foot print in Vietnam, it recently increased that foot print.
Problems can arise from that sort of banking that are "different" but could net out the same so what, really, is the diff?
Ditto AIB, another long time holding WRT to its footprint in Poland.
I always wonder if bank collapses in China due to massive numbers of bad loans could hurt us more than this domestic subprime situation.
Foreign banks has been a theme of Rogers. I think of it as a more likely adr available in order to get exposure to a foreign country. The tele's too. Energy adrs are a third source. And, I think roger keeps hitting these asset groups. Just a few months ago, bought two India banks (all the money coming in for deals is huge)and Russian teles. These are some of my best performers. I keep trailing stop losses of 8% now that I am quite more than that in the green. What a great concept...when will the music stop? What should we be watching to start scaling out? My fear is that the first shoe that drops could be big followed by bear rallies that yield complacency.
TKF,
Roger, what a day, just a 1.8% position but how sweet to see this bust over 7%. Is it all about elections and pro western government?
China Bank fails bigger than subprime?
I guess it depends on the fallout and I am uncertain . Fair warning things like FXI are heavy in financials. With $1.3 in the kitty, might not the People's Bank step in and prevent a systemic melt down, even if they let a bank fail? That assumes they would know how to do that of course/
Foreign...banks telecom and energy, yes. These are easy ways to get exposure but often one seems to be the better choice over another meaning you still have to be selective and do proper DD.
Turkey? Ian Bremmer said no way on EMU but the currency remains strong, inflation is tamer than what they are used to but I learned that the typical allocation to equities from within by the investing population very rarely exceeds 20% meaning there is very little demand coming from within. This does not have to ever be a problem but it is something that is missing from this equation while present in other countries.
Concise targetted commentary on Turkey. Perfect interview response for Bloomberg!
Now for Bloomberg follow up question: "Well Roger, that's fascinating data fact about Turkey's saving culture, but they must save something, could it be burnt coffee beans, gold, kurdish grudges (whoops, censor)."
Actually, you have me wondering and whether or not a middle class is emerging.
A harsh observation, but an emerging Islamic middle class means more sophisticated Sharia Law. Bankers and financial advisors, time to get sized up for your burkha or back whip.
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