I was just poring over a list of Asian bank stocks and was left dazed. It was a list of the top 100 Asian banks by market capitalization and I decided to strip out the Japanese and Australians and look at the remaining Asian banks.
There were 38 banks left, and these numbered Asian powerhouses such as DBS, State Bank of India, Hang Seng Bank, Bangkok Bank, H&CB and Maybank. Basically, if you controlled these 38 banks you would pretty much dominate every economy in Asia-Pacific (excluding Japan and China).
What was striking was their combined market cap. It added up to a mere $135.7 billion. To put that in perspective, Citigroup’s market cap is $252 billion. That is to say, Asia’s most powerful banks are worth barely half what Citigroup is worth.
That led me to think about the amazing choice these valuations suggest. Theoretically Citibank could swap half its stock and dominate the banking systems of nine Asian economies. Meanwhile it could still return over $100 billion to shareholders as a special dividend.
I find this bizarre. Regardless of the Asian crisis, these nine countries will still be among the highest growth stories in the 21st century. Demographics say as much.
So does this seem rational? Given the choice which would you choose? Citibank or dominance of nine Asian economies?
I can only conclude that either Citi’s valuation is too high, or these Asian bank valuations are too low. And given that bank stocks are indicative of the sentiment felt about whole economies, I think that this question says a lot about Asia en masse.
My suspicion is that Citibank is not an overly overvalued stock – it is trading at around 25 times profits. That suggests to me therefore that Asia is fantastically undervalued.
Thus if my investment horizon was 10-15 years, I would stick a whole chunk of my portfolio into these 38 Asian bank stocks and sit and wait. I would incur no transaction costs by trading. No, I’d just sit and wait.
Unfortunately, there are very few fund managers with the luxury to take this long term approach. They are all judged on a quarter to quarter basis, which precludes looking at the bigger picture in this way.
