Russell banks have been a capital incinerator for the last 12 years, really ever since 2008.
East Asian banks in particular (China, HK, Korea, Japan) are all very cheap. Yes there are questions on credit quality especially due to realestate dependence but unless the bottom truly falls out are unlikely to be systemic.
Even value investors shy away from ICBC, MUFG etc. If you truly believe in global reflation then this is the trade to go for.
I have lived in Japan for a few years now. I have noticed how low wages really are and how cheap the cost of living is. But I have also noticed recently that inflation has begun to rise a bit. Food, fuel, and housing have been going up after flat lining for a long time. But wages have not followed. I am thinking this might finally be changing though. A shocker was the recently announced 40% wage increase Uniqlo is enacting.
I had been thinking about the best way to trade this potential sea change in Japan. Your thesis that these drivers will be positive for banks makes sense. After not looking at the Japan bank stocks for while I was surprised to see the big 3 are all up about 25% since mid-Dec. They have all broken out from long term narrow ranges. Do you have any thoughts on when to jump in?
As you pointed out, all the charts on these individual banks are not very long. But considering your point that the bank index has fallen such a huge amount over the long term, maybe in the big picture, even these break out moves are not really that big. One could wait for a pullback, but the Yen appears likely to appreciate in this scenario too which might offset any possible lower entry point. Anyway, any thoughts you could offer would be appreciated.
I taught English when I was uninversity there - the rate was about 2000 yen per hour, which as far as I know has not changed. In 1994, this was good money - but today it’s probably minimum wage in Australia.
Back in 2004 when they broke out, they never really sold off - but maybe this time is different. I really dont know. We are moving to a new world, so hard to know how asset markets will trade going forward.
Seems since Nov these two have been ripping. Question, as an investor, do you have issues paying up or after such a rip say in SMFG you wait for a pull back?
A real pro-labor policy might be to bailout workers instead of banks in the next meltdown episode. So this is a very asymmetric trade in my view given the leverage in the financial system and its geopolitical instability.
Wow I was in banking a long time and we never placed enterprise value on our "Liabilities", the deposits, rather we placed it on our earnings from our Loan Book ("Assets"). No wonder these banks went bust...... Interesting piece as always.
The banking upheaval in the US has crashed the price of Japanese banks as well. The big 3 have retraced more than half of their gains since higher inflation and the possibility of higher BOJ rates started their rally last last year.
Since I missed that move entirely, I am wondering now if this is a great opportunity to buy Japanese banks or (1) will concerns over big loan books at super low rates, and (2) a BOJ that might now be even more hesitant to raise rates going forward put an end to the bullish case.
I suppose one place to start would be to do some digging to see how exposed the banks books are to rising rates. I am guessing Russel's view would be that inflation will continue to exert pressure so the BOJ will still have consider higher rates and therefore the banks should benefit.
Anyway, since this trade idea has been out there for a while and the market action is now so extreme, any thoughts from the community would be appreciated.
Just published something... I can see good technical rates for why JGBs have rallied so much.... lets see if they are trade the opposite of gilts, where the fall in yields is slowly reversed.
Another thought: if the Japanese are no longer the marginal buyer of UST, IG Bonds what happens next? More QE from the Fed? Or will all G7 bond yields rip higher - then what breaks?
so given that whereas in Japan we have been living through the biggest monetary experiment (maybe ever)and that arguably is about to end that is a good thing?
Russell banks have been a capital incinerator for the last 12 years, really ever since 2008.
East Asian banks in particular (China, HK, Korea, Japan) are all very cheap. Yes there are questions on credit quality especially due to realestate dependence but unless the bottom truly falls out are unlikely to be systemic.
Even value investors shy away from ICBC, MUFG etc. If you truly believe in global reflation then this is the trade to go for.
Japanese banks not performing well was disturbing me for that exact reason. If inflation is coming, they should scream higher…. Now they are.
https://www.bbc.co.uk/news/business-64232184
Uniqlo raising wages is a big deal I think
I have lived in Japan for a few years now. I have noticed how low wages really are and how cheap the cost of living is. But I have also noticed recently that inflation has begun to rise a bit. Food, fuel, and housing have been going up after flat lining for a long time. But wages have not followed. I am thinking this might finally be changing though. A shocker was the recently announced 40% wage increase Uniqlo is enacting.
I had been thinking about the best way to trade this potential sea change in Japan. Your thesis that these drivers will be positive for banks makes sense. After not looking at the Japan bank stocks for while I was surprised to see the big 3 are all up about 25% since mid-Dec. They have all broken out from long term narrow ranges. Do you have any thoughts on when to jump in?
As you pointed out, all the charts on these individual banks are not very long. But considering your point that the bank index has fallen such a huge amount over the long term, maybe in the big picture, even these break out moves are not really that big. One could wait for a pullback, but the Yen appears likely to appreciate in this scenario too which might offset any possible lower entry point. Anyway, any thoughts you could offer would be appreciated.
I taught English when I was uninversity there - the rate was about 2000 yen per hour, which as far as I know has not changed. In 1994, this was good money - but today it’s probably minimum wage in Australia.
Back in 2004 when they broke out, they never really sold off - but maybe this time is different. I really dont know. We are moving to a new world, so hard to know how asset markets will trade going forward.
How can one invest in Japan banks? Is there an ETF that does that?
You can also buy SMFG US or MUFG US - which are the American listings of two large Japanese banks.
ty
Seems since Nov these two have been ripping. Question, as an investor, do you have issues paying up or after such a rip say in SMFG you wait for a pull back?
Thanks. Love your work.
In USD terms it had not moved for years.. if i was running a fund i would take a starter position and then add if.you do get a pullback
https://finance.yahoo.com/quote/1615.T/
ty
A real pro-labor policy might be to bailout workers instead of banks in the next meltdown episode. So this is a very asymmetric trade in my view given the leverage in the financial system and its geopolitical instability.
I think this is happening... one thing about Japan is a good labor model... so if strikes become a big problem in US and Europe maybe Japan benefits??
Wow I was in banking a long time and we never placed enterprise value on our "Liabilities", the deposits, rather we placed it on our earnings from our Loan Book ("Assets"). No wonder these banks went bust...... Interesting piece as always.
Lending is easy!
Lending poorly is easy.
I stand corrected
Ah yes
The old widowmakers don't appear to make them anymore
Instead new ones emerge
Korean banks are also VERY cheap if you ignore possible real estate credit risks
Korean banks are really the worst
Why do you say that
Poor credit control?
Amazing history of losing money on every lending boom
The banking upheaval in the US has crashed the price of Japanese banks as well. The big 3 have retraced more than half of their gains since higher inflation and the possibility of higher BOJ rates started their rally last last year.
Since I missed that move entirely, I am wondering now if this is a great opportunity to buy Japanese banks or (1) will concerns over big loan books at super low rates, and (2) a BOJ that might now be even more hesitant to raise rates going forward put an end to the bullish case.
I suppose one place to start would be to do some digging to see how exposed the banks books are to rising rates. I am guessing Russel's view would be that inflation will continue to exert pressure so the BOJ will still have consider higher rates and therefore the banks should benefit.
Anyway, since this trade idea has been out there for a while and the market action is now so extreme, any thoughts from the community would be appreciated.
Just published something... I can see good technical rates for why JGBs have rallied so much.... lets see if they are trade the opposite of gilts, where the fall in yields is slowly reversed.
Another thought: if the Japanese are no longer the marginal buyer of UST, IG Bonds what happens next? More QE from the Fed? Or will all G7 bond yields rip higher - then what breaks?
Scary yet exciting times.
Russell-slightly off topic but it appears things are rapidly spiralling out of control in Japan.One of our brothers https://twitter.com/AitkenAdvisors/status/1613482087457394688?s=20&t=lJxZyiKJM2umswR6f8aSSA said this.I would love to know your thoughts about what would happen if BOJ caves and I suspect a lot of other subscribers too.
If bond markets are signalling the return of inflation to Japan - how can that be bad?
so given that whereas in Japan we have been living through the biggest monetary experiment (maybe ever)and that arguably is about to end that is a good thing?
A good thing for who?For what asset classes?