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Asia banks
Bottom fishing
Trawling for value
Nothing gives greater comfort to investors than a stock that’s cheap. With
global markets reeling, brave souls may be looking to bottom fish. But what
defines cheap?
Various measures to define value
As we trawl for the cheapest bank in the region, we use the following
valuation measures to screen for value:
Price to Book Value (P/BV) Price to Earnings Ratio (PER)
Price to Underlying Profit (P/UP) Market cap to Deposits
Dividend yield vs Benchmark rate Return on equity vs Cost of equity
In our view, these are the six most common, if not the only ways, banks can
be valued. Under these various measures, Korea and Japan have the
cheapest banks in the region (see table at the side). Within Korea, KEB and
Woori and IBK offer the best value, while in Japan, Resona Holdings stands
out. Confirming the common gripe by investors, Indonesia looks expensive
led by BCA.
Cheap is not the driver for price performance
Despite doing this exercise screening for the cheapest banks, we don’t
believe cheapness will be the catalyst for outperformance. In our view, the top
down considerations will continue to dictate prices.
A look at the share performance lends credence to this notion, as the banks
that are deemed to be the cheapest have underperformed the banks that are
deemed more expensive but seen to have a more upbeat macro standing in
their country. In this regard, the better performers have been in Southeast
Asia and Taiwan, while the laggards have been China, Hong Kong, Korea,
and India. We think this will continue, with this trade likely to end with the hint
of inflation. In our view, the cheap trade will only play out if it’s accompanied
by the emergence of macro catalysts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asia banks
Bottom fishing
Trawling for value
Nothing gives greater comfort to investors than a stock that’s cheap. With
global markets reeling, brave souls may be looking to bottom fish. But what
defines cheap?
Various measures to define value
As we trawl for the cheapest bank in the region, we use the following
valuation measures to screen for value:
Price to Book Value (P/BV) Price to Earnings Ratio (PER)
Price to Underlying Profit (P/UP) Market cap to Deposits
Dividend yield vs Benchmark rate Return on equity vs Cost of equity
In our view, these are the six most common, if not the only ways, banks can
be valued. Under these various measures, Korea and Japan have the
cheapest banks in the region (see table at the side). Within Korea, KEB and
Woori and IBK offer the best value, while in Japan, Resona Holdings stands
out. Confirming the common gripe by investors, Indonesia looks expensive
led by BCA.
Cheap is not the driver for price performance
Despite doing this exercise screening for the cheapest banks, we don’t
believe cheapness will be the catalyst for outperformance. In our view, the top
down considerations will continue to dictate prices.
A look at the share performance lends credence to this notion, as the banks
that are deemed to be the cheapest have underperformed the banks that are
deemed more expensive but seen to have a more upbeat macro standing in
their country. In this regard, the better performers have been in Southeast
Asia and Taiwan, while the laggards have been China, Hong Kong, Korea,
and India. We think this will continue, with this trade likely to end with the hint
of inflation. In our view, the cheap trade will only play out if it’s accompanied
by the emergence of macro catalysts.
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