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.
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.
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?
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.
How can one invest in Japan banks? Is there an ETF that does that?
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.
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
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.
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.