(Reuters) - Money markets have already priced in U.S. Federal Reserve cuts on borrowing costs in the world’s top economy this year, prompting some investors to re-assess their holdings of U.S. banks, as they expect narrower margins in lending, while being selective with their holdings of European financials.
Kokkie Kooyman, director and portfolio manager, global financials, Denker Capital told the Reuters Global Markets Forum on Thursday he likes quality names such as ING Groep (INGA.AS) and JPMorgan Chase & Co (JPM.N) and sees opportunities in emerging market financials in India and Indonesia.
South Africa-based Denker Capital manages roughly about $700 million in assets across its funds.
The following are excerpts from the Reuters Global Markets Forum chat. To join the forum, click here: tmsnrt.rs/2jTnFk8
Question: JPMorgan Chase & Co (JPM.N) is the Denker Global Financial Fund’s top holding, as of the end of May. Considering the expectations of Fed easing, would you trim exposure to U.S. banks?
Answer: We’ve been debating that point extensively. JP is one of the best banks in the world with a great team and very good CEO and it has shown how it’s come through various slow-downs and the 2008 crisis very well. Jamie Dimon (CEO) has focused on building a fortress balance sheet.
So yes - the lower interest rate environment is not ideal - but not only financials will face lower earnings. So JP will come out best (our opinion) and take more market share and it’s still very attractively valued. ROE of 14%-15% and P/NAV of 1.35.
Q: Do you think it’s a good time to consider switching from U.S. financials to European financials?
A: If you look at relative price graphs and valuation differentials, the trade seems on but we think European financials will only really re-rate once the market sees prospects of higher growth and interest rates - until then European banks could go the same route as Japanese banks.
(Graphic: Second quarter performance of European and U.S. financials - tmsnrt.rs/2YiwPez)
Q: How do you see Indian financials?
A: India is undergoing a liquidity crisis at the moment due to a few real estate developers falling over - and share prices have come down and suddenly India’s potential growth rate is being questioned. But even if India gets back to a 5% GDP growth rate in 2020, financials are well placed.
But again the emphasis is on quality - players like HDFC companies such as HDFC Bank (HDBK.NS) are preferable - not the public sector banks which are being forced to consolidate ... putting two pieces of rubbish together, you get a bigger piece of rubbish.
This interview was conducted in the Reuters Global Markets Forum, a chatroom hosted on the Refinitiv Eikon platform.
Reporting by Aaron Saldanha in Bengaluru; Editing by Bernard Orr