Financials

Report by CHA-AM Advisors

David Scott sees global banks as still offering substantial value, with China the standout deep-value opportunity. Chinese banks trade at distressed-looking valuations despite resilient loan growth, profitability and well-covered dividends; David argues they are “too cheap to ignore”, with buybacks also looking increasingly likely given the large discounts to book value. China Merchants Bank is his preferred name given superior fundamentals and a valuation now around peer levels. By contrast, he expects Indian banks such as HDFC and Kotak to continue underperforming as intense competition for deposits, staff and lending compresses margins and efficiency. He remains positive on Banorte (a cheap play on Mexico’s growth) and Lion Finance (which is up another 155% since he last recommended it), while highlighting Commercial International Bank as a new Egyptian idea.

Report by Copley Fund Research

Over the past 6 months there has been some aggressive country repositioning among active EM managers - Mexico is now the largest country overweight position (vs. the benchmark iShares MSCI EM ETF). Despite this sentiment shift, Steven Holden says allocations look far from stretched (avg. weights among active EM funds: 3.4% today vs. nearly 5% in 2015). On a Style basis, Yield managers have increased weights the most. On a stock level, Grupo Financiero Banorte and Wal-Mart de Mexico have been instrumental in Mexico’s rise up the ranks.