The Top 10 Global Banks by Assets 2018

The Top 10 Global Banks by Assets for 2018 is shown in the chart below. According to the Bloomberg article 9 out of the top 10 banks were Japanese in 1988 before the Nikkei collapsed Before the Global Financial Crisis of 2008, the list was dominated by US and European banks. After the crisis most of these developed banks crashed and would not exist today if they were not bailed out by the states. European banks especially were the hardest hit and never recovered due to incompetent managements, political paralysis, dithering regulators and politicians. The banking crisis shows that when a crisis hits, Americans are better in handling and fixing it than the Europeans. Sometimes one has to wonder if all those European bankers know even how to run a mom-and-pop grocery store in a third-world country let alone a complex operation like a bank.

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Source: China’s Giant Banks Top This Ranking. And That’s a Cause for Concern, Bloomberg

Of the top 10, five are Chinese banks including all top 4. The only European bank is the French BNP Paribas(BNPQY). UK-based HSBS(HSBC) is really an Asian bank with roots in Hong Kong.

Disclosure: No Positions

BlackRock: Asian Equity Markets Are Cheap Now

The US equity market is in positive territory with the S&P 500 up by 5.41% YTD. Most of the developed European markets are down so far this year. The Turkey crisis has added more pressure on some of the banks in Europe and the markets in general. Emerging markets have been hit especially hard with some of the currencies plunging to new record lows. Some of the emerging equity markets are also down year-to-date. For example, Shanghai Composite is off over 17%, Russia’s RTS is down by over 8%, Turkey’s BIST 100 is in the red by about 225, etc.

Some investors may be wondering which markets are cheap given the current market situation. According to Russ Koesterich, CFA of Blackrock says that Asian stocks are cheap in an article. He notes that Korea and Taiwan are especially cheap. From the piece:

While not enjoying 2017-like returns, stocks are having a decent year. Developed market equities are up more than 4% in dollar terms. Things look even better in the United States, with the S&P 500 Index up around 7%. As many markets started the year at already full valuations, investors could be forgiven for thinking that there are few bargains left. Interestingly, much of Asia appears really cheap.

As of the end of July, Japanese equities remain the cheapest equity market in the developed world.  The Topix Index (TPX) is trading at 1.8 times price-to-book (P/B), roughly half the level of the S&P 500. The current discount is close to the lowest since 2012, a period that preceded a three-year, 150% rally.

The Asian discount applies to a number of emerging markets as well. For example, Korean equities remains not only the cheapest equity market but by some measures the cheapest asset class (see Chart 1). Korean equities even look inexpensive relative to the already discounted emerging market space. The current valuation represents a 40% discount to the rest of EM, the largest discount since the 1997 Asian financial crisis.

Source: Asia on sale,  Russ Koesterich,  Blackrock

Related ETFs:

  • iShares MSCI South Korea ETF (EWY)
  • iShares MSCI Turkey ETF (TUR)
  • iShares MSCI Taiwan ETF (EWT)

Disclosure: No Positions

Comparing Current Account Balances Of Select Emerging Countries

Current Account Balances is an important factor to evaluate the health of an economy. A surplus indicates that the country is in a better financial shape and lends money to other countries. A deficit implies that the country is a debtor to other countries and institutions.

The chart below shows the current account balances for select developing countries:

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Source: What happened to all the worries about rising inflation and bond yields? Goldilocks, tariffs, Turkey & other things by Dr.Shane Oliver, AMP Capital

Turkey is the worst based on this factor and Thailand is the best since it has the highest surplus. Other major emerging economies with surpluses are Russia, South Korea and Malaysia.

Employment Protection Legislation: Which Countries Are Flexible and Which Are Rigid?

Employment protection laws for labor varies countries countries. Countries with flexible labor laws tend to have vibrant economies and strong economic growth. The US is the classic example of this scenario. Among the major developing countries India has the one of the most rigid labor laws as the following chart shows:

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Source: India’s Strong Economy Continues to Lead Global Growth, IMF

On the Importance of Diversification During Bear Markets

Diversification is one of the simplest and easiest strategies that retail investors can follow to protect their portfolios from high volatility. Holding a wide variety assets across regions and countries and sectors and avoiding timing the market would go long in generating high returns. Trying to predict which sector will be winner during the next downturn is especially hard to predict if not impossible. In addition, a sector that was the winner in the last bear market may turn to out a loser in the next one and vice versa.

The following graphic shows the performance of select sectors during the dot com collapse and the global financial crisis:

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Source: Why it’s so hard to predict the next bear market, Chris Tidmore, Vanguard

From the above article:

Many active fund managers try to look into the future. They choose stocks for their funds by trying to predict which market segments will perform well.

The differences in the last 2 bear markets illustrate how hard it can be to identify which sectors and segments of the market are susceptible to a future downturn.

Figure 1 shows that when the tech bubble burst in the early 2000’s, IT, telecom, and utilities were the worst-performing sectors. During the global financial crisis, REITs, financials, and industrials performed poorly. On the other hand, REITs thrived during the tech bubble, and utilities performed the best during the financial crisis.

The key takeaway is that a sector that performs poorly in one bear market may turn out be the best performer in the following one and vice versa.

Per Capita Income Comparison of BRICS Countries

The per capita income among BRICS countries vary widely. Russia has the highest per capita income at about $11,000. India has the lowest at $2,000 as shown in the chart below:

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Source: India’s Strong Economy Continues to Lead Global Growth, IMF

The IMF article notes that India’s per capita income is well below than other large emerging peers and India needs to accelerate reforms to keep the maintain job growth.