All Canadian bank investors know that the sector has experienced very good performance over the past ten to fifteen years. However, most are less familiar with Australia, which actually has a history of long-term outperformance relative to the Canadian financials, with virtually identical volatility. Interestingly, as a testament to the strength of the Australian financial sector, its banks even outperformed the Canadian banks during the global…
Insights: Asia/Australia
Australian Banks: Rate Cut Highlights Benefits of Flexible Monetary Policy
The Hamilton Capital Global Bank ETF (HBG; TSX) emphasizes the benefits of investing in countries with flexibility in monetary policy – i.e., those with a central bank rate materially above zero. As of month-end, the weighted average central bank rate was over 1.0%, materially higher than that of Canada (50 bps) or the U.S. (~38 bps – i.e., between 25 and 50 bps). One of those…
One Trillion Reasons Why Europe is Not Japan
Recently, we have seen many comparisons between Europe now to Japan after it emerged from its deep and protracted cycle (from 1989 to 1999). In this note, we address why this analogy, and by extension the comparison between their respective banking systems, lacks merit.
March 2016 Update | Australian Banks: Profitable Banking Sector in a Wealthy Country
In this note, we provide a review of the Australian economy and banking system, highlighting the most important issues facing the sector. Australia is a wealthy country with an oligopoly banking sector, with banks known for their profitability, strong credit metrics, and high dividend yields. Current headwinds facing the economy, which will impact the banking system, include elevated real estate prices and a downturn in the…
Chinese Banks Part #3: Are Chinese Banks Solvent? Q&A on the Sector
In this series on Chinese banks, we have been evaluating the risk that distress in the system triggers a global sell-off. In the first two parts, we assumed that the Chinese government’s reported statistics are unreliable and hence obscuring the true financial distress of the sector. Then, to help investors understand these systemic risk issues, we presented the arguments supporting the bear case (Part #1), as…
Chinese Banks Part #2: For BULLS, Four Reasons Why Macro Risk from Chinese Banks is Overstated
In this three part series, we discuss macro risk posed to the markets by the enormous Chinese banking sector. In Part #2, we take the perspective of the ‘bulls’, providing reasons why the macro risk posed by the Chinese banking sector is overstated. In Part #1, we provided the perspective of the ‘bears’, discussing why the sector could be the epicentre of a further global sell-off…
Chinese Banks Part #1: For BEARS, Four Reasons Why Chinese Banks’ Distress Could Amplify the Global Sell-Off
In this three part series, we discuss macro risk posed to the markets by the enormous Chinese banking sector. In Part #1, we take the perspective of the ‘bears’, discussing why the sector could be the epicentre of a further global sell-off and/or additional macro uncertainty. In Part #2, we take the perspective of the ‘bulls’, providing reasons why many believe the macro risk posed by…
Global Growth – Economists vs. the Markets
In this comment, we discuss the seemingly large gap between economists’ growth expectations for the global economy and those of the market. The former is forecasting comfortably positive growth, while the latter’s worries have prompted a global sell-off in equities. We also address the most likely trigger of a global downturn, while reviewing the impact of the European sovereign debt crisis.