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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (34942)	6/12/2003 10:50:58 PM
From: EL KABONG!!!	Respond to of 74559

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To: TobagoJack who wrote (34942)	6/13/2003 4:06:16 AM
From: elmatador	Respond to of 74559

Emerging market banks in favour By Salamander Davoudi Published: June 11 2003 15:58 \| Last Updated: June 11 2003 15:58 <<capital hogging by the economies where there are no economic activities towards the countries that have economic actibvities but no capital is going on>> The global banking sector has had a tough time this year amid the fallout from accounting scandals and weak capital markets. But many banks in emerging markets have been largely unscathed by the problems and their outperformance looks set to continue. The global emerging market (GEM) banking sector continues to find favour with dedicated funds and strategic investors such as European and US banks that lack domestic growth opportunities but see potential in the developing world. Moreover, bank shares form a large part of most GEM indices. However, investors need to choose their shares carefully. In some countries equity returns from the banks have been staggering. Taiwan's banking sector rose 25 per cent in 2002, outperforming the benchmark weighted index by 50 per cent after the sector received a boost from improvements in the regulatory and institutional framework. "There is not only a bounce (in emerging market banks) but banks are still cheap on an adjusted price book basis so you have value and momentum. In the developed world you just have momentum," said Tim Love, global emerging markets strategist at Deutsche Bank. South African banks have provided investors with returns of 32 per cent since last August helped by a stronger rand, which has attracted foreign and local money back into the industry. South Korean banking is on track to be a star performer this year despite losing 8 per cent on the sector index and underperforming the market by 10 per cent in 2002, according to analysts at Merrill Lynch. "We think South Korea could become one of GEM's best performing markets on a 12-month view," said Paul Tucker, co-head of global emerging markets financials research at Merrill Lynch. "This may sound risky, and indeed it is, but at the same time if we had said the same for Brazil, Israel and Colombia 6-9 months ago we would have been laughed out of court too. It's darkest before dawn," he added. Deustche analysts agree, ""Korea is an opportunity to exploit and not to fear," said Mr Love. But the picture has not been one of undiluted success across the board. Israel was a weak performer in 2002 because of a depressed economy, a weakened shekel and rising inflation. Shares in the two largest Israeli banks, Hapoalim and Leumi, which command 60 per cent of market share, hit their lowest levels since 1998. There will always be winners and loosers but broader banking sector earnings per share are estimated to rise by 15.4 per cent in emerging markets this year as opposed to 12.6 per cent in developed European countries. Analysts note that GEM economies escaped much of the slump in technology, media and telecommunications stocks (TMT), as the banks lend less to corporations than their developed counterparts. "If a chip manufacturer builds a plant in Taiwan, it is less likely to borrow funds from the local banks, said Mr Tucker. "As the TMT sector turned sour, this meant that the developed banks were much more exposed to these investments than the locals." The GEM banking sector also avoided much of the fallout from global accounting scandals as its business stru ctures tend to be more straightforward with fewer complex derivatives. This makes sudden rogue income streams more obvious to detect on the balance sheet. Despite these favourable conditions that have so hurt GEM's developed peers, a common pitfall in emerging markets remains the higher levels of sovereign debt on bank balance sheets. "If you lend less you have to invest somewhere and they (the banks) are therefore more sensitive to default and rising risk aversion," said Mr Tucker.