Cheap Foreign Bank ADR Stocks

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Foreign bank stocks have fallen heavily in the past few months in tandem with their US peers due to the credit crisis. Last week was a crazy week as many of the bank stocks skyrocketed due to the short covering rally. Many are not sure what will happen after the ban on shorting of financials ends on Oct 2nd.

Some of the bank stocks that were heavily shorted before went high due to the rally. Still there are some foreign banks that are still down > 50% year-to-date. Its possible that these banks may be cheap now if the bailout plan for the US market works. On the other hand one must remember that these bad beaten down stocks are cheap for a reason. They have had huge losses or the economy where they operate is in a downturn.

In the list below, the worst ADR YTD is Allied Irish Bank (AIB) which is down over 60%. This is not surprising since the Irish economy has been hurting badly in the past couple of years. For the same reason the other Irish ADR, IRE is also down over 54%.

The best bank ADR so far this year is the London-based HSBC bank(HBC). It is down just 2.34% YTD. Compared to other British banks like LYG and RBS which are over 40% and 50% down YTD, HBC’s performance is very good.

The following table lists the worst and the best bank ADRs year-to-date:

[TABLE=3]

Five Asian Closed-End Funds

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Thailand

Thailand Beach

The following are a few Asian Closed-End Funds:

1.Taiwan Fund – TWN
Total Assets = $357 Mil
Discount to NAV = -12.21%

2.Korea Fund – KF
Total Assets = $554 Mil
Discount to NAV = -13.06%

3.Aberdeen Australia Equity Fund – IAF
Total Assets = $300 Mil
Discount to NAV = -5.78%

4.Singapore Fund – SGF
Total Assets = $160 Mil
Discount to NAV = -16.33%

5.Thai Capital Fund- TF
Total Assets = $39 Mil
Discount to NAV = -13.95%

All the above five funds are trading at a discount to NAV which implies that they are cheap at these prices. Australia and Singapore are probably safer funds than the rest. Thai fund is a frontier market fund. As a the Asian markets are falling in sync with world markets caution is warranted before investing in any of these funds. But these funds are a better way to invest than to pick individual stocks especially in these foreign countries.

Are Foreign Banks in a Sweet Spot Now?

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The soon-to-be passed bailout plan in the US has a provision that will be favorable to foreign banks. Basically foreign banks that have US operations will be able to offload their worthless toxic assets to the rescue fund to be set up as per the bailout plan.

The New York Times piece “Foreign Banks Hope Bailout Will Be Global” states that foreign banks successfully lobbied to have this provision included.

“The original text provided access to the $700 billion bailout for any financial institution based in the United States.

As the day wore on, some raised their concerns with the Treasury Department, arguing that foreign institutions were both big employers and major players in the American capital markets. By Saturday evening, the language had been changed to allow any financial institution “having significant operations” in the United States.” (emphasis added)

So now its a neat idea to look at which foreign banks will benefit from this. Here are eight foreign banks that have significant operations in the US:

1. Bank of Montreal – BMO
Canada
Dividend Yield: 5.98%

2.Toronto-Dominion Bank – TD
Canada
Dividend Yield: 3.84%

3. ING Groep NV – ING
The Netherlands
Dividend Yield: 8.46%

4.Deutsche Bank AG – DB
Germany
Dividend Yield: 7.96%

5. Credit Suisse Group – CS
Switzerland
Dividend Yield: 4.59%

6.HSBC Holdings plc – HBC
UK
Dividend Yield: 4.42 %

7.Barclays Bank plc – BCS
UK
Dividend Yield: 5.72%

8.Societe Generale- SCGLY
France
Dividend Yield: 1.48%

To answer my title question.Yes. Foreign banks are in a better position now due to this bailout/rescue plan. They can easily offload the toxic assets and move on with a clean balance sheet. Obviously this is not a good news for US tax payers as they have to pay for these losses.

In summary, if you looking to pickup some foreign financials the above banks are a good starting point.

The 5 Largest Country Specific ETFs

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In this post, lets take a look at some of the five largest iShares ETFs that focus on a specific country.

Emerging market stock market indices have plunged considerably in the past few months due to crash in commodity prices, slowdown in the US economy, credit crisis, etc. In light of this it is a neat idea to checkout which countries are still the favorites for investors. One simple way to identify these countries is to analyze the country specific ETFs that trade on the markets on a daily basis. Since iShares is the leader in this arena, I have used iShares’ ETFs for this study.

The five largest (based on Net Assets held as of 9/26/2008) country specific iShares ETFs are:

1. The iShares MSCI Japan Index Fund (EWJ)
Total Net Assets = $6.9 B

2. The iShares FTSE/Xinhua China 25 Index Fund (FXI)
Total Net Assets = $6.2 B

3. The iShares MSCI Brazil Index Fund (EWZ)
Total Net Assets = $5.9 B

4.The iShares MSCI Taiwan Index Fund(EWT)
Total Net Assets = $2.3 B

5. The iShares MSCI South Korea Index Fund (EWY)
Total Net Assets = $1.9 B

The above list is interesting since except Brazil all the other four are Asian countries. There are some investors who believe that Asia-Pacific countries will perform better in the future when compared to Latin America and Europe. Maybe this logic is confirmed by our list above. I am not sure.

Anyway Japan’s ETF JXI has the most assets at $6.9B. With the market in flat-to-down mode for many years in Japan, not sure why the big interest in Japanese stocks. China is another story. I believe The Shanghai Index has crashed over 60% year to date after the bubble popped there. Still it is amazing to see that $6.2B is in this fund (JXI). Today Fellow blogger TG has a post via Bloomberg that states ‘China Allows Short Selling and Margin Purchases‘. We will watch how this impacts JXI .

Brazil is a perennial favorite for investors looking for exposure to Latin American markets. Brazil has built a strong economy with many good government policies. But still the economy is heavily dependent on commodities. So EWZ has fallen in sync with other emerging market ETFs recently. However unlike China, India and Russia, Brazil has vast natural resources and a stable democratic political system.

The economy of Taiwan is a export oriented with a heavy focus on contract manufacturing of tech products like semiconductor chips, monitors, laptops, etc. With the technology stocks holding up better than the battered financials in this market, the Taiwain ETF EWT is down only about 14% Year-To-Date.

South Korea is known for its steel, ship building and electronics manufacturing. Unlike EWT, the Korea ETF EWY is down 32% Year-To-Date.With assets close to $2B and a stable political system it is definitely worth keeping an eye on.

Stocks of The Best British Brands

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London

London, UK

In April of this year, the marketing research firm Millward Brown, released the third annual Top 100 Brandz list. According to the report, companies that own the brands in this top 100 list “have significantly outperformed the stock market when compared to the S&P 500”. The rankings are based on analysis of financial data of the companies studies from Jan 2,2007 to Dec 31,2007 and interviews conducted with customers worldwide.

The top global brand name in this list is Google (GOOG) with a brand value of $86.0B. Coca-Cola (KO) is listed as fourth with a brand value of $58.0B. Other companies in the top 10 are General Electric (GE), Microsoft(MSFT), China Mobile, IBM (IBM), Apple(APPL), McDonald’s (MCD), Nokia (NOK) and Marlbaro. In this article we will review “The Top 10 British Brands” and the companies that own them.

The The Top 10 British Brands in the order of “Brand Value”are:

1. Vodafone (VOD)
2. Tesco (TSCDY)
3. HSBC (HBC)
4. Marks & Spencer
5. Barclays (BCS)
6. Standard Chartered Bank
7. BP (BP)
8. Royal Bank of Scotland (RBS)
9. Asda
10. Natwest

Some of the companies that own the above brands trade in the US. A brief overview of these stocks follows:

1. Vodafone (VOD) is a mobile telecom service provider with a customer base of 269 million in Asia, Europe, USA, the Middle East and Africa. VOD has a dividend yield of 8.57%. The PE ratio is 10.15 and the company has a market cap of $125.0B. The annual dividend growth rate is 31.6% for the past 5 years.

2. Tesco (TSCDY) is a retailer (grocery) with operations in the UK, Europe and Asia. Tesco’s ADR stock trades on the OTC market. Total revenue has been rising over the past 5 years due in part to the rise in global food prices. The current dividend yield is 4.44%.

3. HSBC (HBC) is a money center bank that serves 128 million customers worldwide. The dividend yield is 4.42% and the earnings growth in the past 5 years is about 25%. HBC is one of the few British banks to have limited impact from the current credit crisis.

4. Marks & Spencer – This famous retailer trades on the London Stock Exchange with ticker MKS.L.

5. Another global bank based in the UK is Barclays (BCS) . The stock pays a 5.72% dividend yield and is down about 40% in 52 weeks due to the global meltdown in financials. Barclays owns iShares, the world’s largest and best known ETF provider.

6. Standard Chartered Bank – StanChart does not have an ADR but is listed on the LSE with ticker STAN.L

7. BP (BP) is one of the world’s largest integrated oil and gas producers. The dividends for EPS have increased at an annual rate of 24.5% and 12% in the past 5 years. BP pays a great 6.07% dividend.

8. The holding company Royal Bank of Scotland Group Plc (RBS) owns the Royal Bank of Scotland and National Westminster Bank Plc which is number ten in the list above. Last year RBS together with Banco Santander (STD) and Fortis acquired ABN AMRO of the Netherlands.

9. Asda is UK’s second largest supermarket chain and owned by Wal-Mart(WMT). Asda competes against Tesco and other retailers.

10. Natwest, a short name for National Westminster Bank Plc is now part of the Royal Bank of Scotland Group plc (RBS).