The Top 10 World Banks Based On Tier1 Capital 2015

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The highly respected The Banker magazine published the annual ranking of the Top 1000 Global Banks last month. The chart below shows the The Top 10 World Banks Based On Tier1 Capital:

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Top 10 Global Banks

Source: The Banker

China’s biggest banks ICBC (IDCBY), China Construction Bank(CICHY), Agricultural Bank of China(ACGBY) and Bank of China (BACHY) take four of the top 10 spots on this list. The usual four US superbanks – Bank of America(BAC), Citigroup(C), JPMorgan(JPM) and WellsFargo(WFC) – also appear in the ranking.

Disclosure:  No Positions

Top China A-Shares By Returns Before The Recent Collapse

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“To get rich is glorious!” – Deng Xiaoping

The Chinese seem to take above Deng’s message to a whole new level. During the dot com boom in the late 90s tech stocks on the NASDAQ soared to astronomical levels. Americans from all walks of life were mesmerized by the paper “wealth” that was being created on a daily basis courtesy of Silicon Valley geniuses and Wall Street. Then the whole thing collapsed before most people had time to realize what was happening to their beloved tech stocks. Similar situation has developed in China in the past few years. As the real estate market cooled, the Chinese jumped to the stock market to make a quick buck. Millions of people from cities and villages ended up getting addicted to stocks. It is indeed shocking to see old retired poor folks in China staring at the display terminals mesmerized by the flashing of tickers.

The following table shows how much A-shares soared before the recent crash:

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China A-Share Top Stocks

 

Source: Chinese percentages that will melt your mind, from JPM, FT Alphaville

Naming IT companies like Hithink RoyalFlush Information, Easy Money Information Co Ltd is really cute……

On The Relationship Between Democracy and Economic, Stock Market Growth

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Is democracy necessary for economic growth and rise of equity markets?

The above question is an interesting topic to analyze since the conventional principle accepted by most people is that democracy is the best form of government that is possible and only democracy can bring about stable and solid economic growth. This idea is particularly well entrenched among the believers of Western-style democracies. However democracy as a form of government is not suitable for some countries for a variety of reasons. This is especially true in emerging countries where democracy is still a new concept and many of the institutions needed for the success of this type of government do not exist or have been corrupted by politicians.

In this post, let us take a look at the relationship between democracy and  economic, equity markets growth in select Asian countries.

1. Singapore:

Singapore broke away from the Federation of Malaysia and was a colonial outpost in Asia. The tiny island state pretty much had nothing significant to speak of in terms of industries and commerce. However under the rule of the late Prime Minister Lee Kuan Yew the country’s economy took off to become a developed country now. From 1959 to 1990, he ran the country under the People’s Action Party (PAP) – the party he co-founded. Though Singapore is a democratic country, practically it is a one-party state ruled by the PAP. With one party in power and a strong leader with a vision, Singapore’s per capita soared by over 5,000% in the past 53 years as shown below. Whether Singapore could have achieved such incredible growth with a multi-party system of democracy is open to argument.

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Singapore GDP growth

2. Indonesia and Philippines:

Indonesia was ruled by President Suharto from 1967 to 1998 under “a strong, centralised and military-dominated government.” During his era Indonesia experienced a stable and sustained economic growth. xx was governed by Prime Minister Ferdinand Marcos from 1965 to 1986. He was a dictator and ruled under martial law for most of his time in office.

GDP Growth-Philippines and Indonesia

3. India:

India is a democratic country with thousands of parties. After independence from Britain in 1947, the country was a closed economy and followed Soviet-style economic policies with centralized planning and implementation. Political in-fighting and corruption prevented economic growth and until the 1990s economic growth was abysmal to say the least. Since 1991 political reforms were implemented and the economy was slowly liberalized.

Sensex since 1979

India could not achieve its full economic potential under the previous three administrations due to political in-fighting, corruption and shaky coalitions as the winning party did not secure a majority needed to form a government.The current Prime Minister Narendra Modi’s party won a majority for the first time and India is on track to economic prosperity under his rule.

4. China:

China follows a unique form of government that can be called as “Market Socialism”. Under this type of government the state has a tight grip on politics but allows citizens to enjoy democracy with respect to economic activities. The Communist Party is the sole ruler in China and any mention of democracy or challenge to the communist rule is crushed fiercely. With no political in-fighting and other messy things that go with democracies, the regime is able to implement policies towards its vision of a strong and prosperous country but with one party rule. As the Chinese economy has achieved enviable growth in the past few decades by lifting millions out of poverty, the country’s citizens are comfortable with the communist party running the country. To put it another way, in return for economic growth, jobs and stability, the Chinese are willing to accept a single-party form of government – even if that party is communist. Hence China is a communist country with a capitalist economy.

It is highly unlikely that China could have achieved dazzling economic growth in such a short period time if it were a multi-party democracy.

 

China GDP Growth

CSI Index Return

Source: Evolving Markets Focus – Global Markets and Asian Political Change, Oct 2014, Nikko Asset Management

The key takeaway for investors is that western-style democracy is not a necessary ingredient for economic growth. While that concept may work fine in western countries it will work in other countries such as the ones discussed above. A strong and stable government is important more than democracy for the economic and equity markets growth.

During Volatile Market Times Simply Stay Invested

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One of the important topics that I have written about many times in the past is Market Timing. Some of those posts can be found here, here, here and here. I came across an interesting article by Fidelity Investments discussing ways to deal with market volatility.

From the article:

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Stock Returns after Volatile Times

U.S. stock market returns represented by total return of S&P 500® Index. Past performance is no guarantee of future results. It is not possible to invest in an index. First three dates determined by best five-year market return subsequent to the month shown. Sources: Ibbotson, Factset, FMRCo, Asset Allocation Research Team as of March 31, 2015.

In fact, what seemed like some of the worst times to get into the market turned out to be the best times. The best five-year return in the U.S. stock market began in May 1932—in the midst of the Great Depression. The next best five-year period began in July 1982 amid an economy in the midst of one of the worst recessions in the post-war period, featuring double-digit levels of unemployment and interest rates.

Source: Six strategies for volatile markets, Fidelity Investments

As the chart above shows, market timing does not work and panic selling during those times is not a wise strategy. Sometimes doing nothing is the best thing to do. During the recent great recession, the S&P  500 plunged to 666 in March 2009. Today it is trading at over 2,055. In hindsight, March 2009 would have been the best time to pick up stocks on the cheap. However not many people were brave enough to do that. But even investors who did not sell out during that panic, would have done much better had they stayed the course.So the key takeaway is where there is blood on the street, it is a great time to invest or stay put.