Posts tagged ‘chinese small caps’

All the way to the bank

Written October 17th, 2011

I feel bad harping on the banks.

Over the past five years, they’ve lost about 60% and even since the market topped on April 29, the financials have lost 22% while the S&P 500 has lost about 10%. That’s a big underperformance. If I had to point to “why”,  I’d have to say uncertainty over the balance sheets, not the income statements. Investors can’t wrap their heads around valuing the securities on the banks books, while at the same time, the banks are carrying them at par, and goosing their earnings by shifting the assets from one category to the next and taking down bad debt accounts. Regardless, the markets will have a tough time sustaining any rally if the banks can’t participate. As the grease of the economy, bank lending has to be a part of any recovery, and that won’t come from government intervention, but rather from confidence in transacting between banks and business people. So far, not there yet.

Now, I’m going to say something that I haven’t said on these pages in years – someday soon, banks will become the attractive portions of the markets while the other, currently well-performing sectors, will be the ones to shun. No, that doesn’t mean I’m selling my utilities, but it means that at some point soon, I anticipate that I’ll want to reallocate to the downtrodden financials. I’m not there yet, but I see the day coming. And, and this is a big AND, other assets are starting to look not-as-bad-as-usual, namely Chinese equities. Again, I’m not a buyer here, but I like buying after an asset class has gone down significantly, especially relative to all other assets. So, reader are on watch.