Mining Dollars in Emerging Markets

10/08/2008 12:01 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Roger Conrad, editor of Canadian Edge, uncovers a Canadian bank focusing on emerging markets.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS) has weathered the storm better than most simply because its subprime exposure was minimal relative to its Canadian and global peers, and it decided long ago to build its business in emerging markets.

BNS now has a strong position in many countries in Latin and South America and has made a strong entrance into Asia. Emerging middle-class consumers in these regions are looking for financial services similar to those offered in North America and other developed regions.

That it didn't announce a dividend hike along with its second-quarter [earnings] disappointed a few analysts accustomed to a constantly rising stream. That it has increased its quarterly payout 9% to 49 cents (Canadian) per share during the last 12 months while continuing to execute a well-designed, long-term growth strategy makes it a compelling investment story.

BNS, which now operates in 11 countries in Asia-Pacific and has been in China since 1982, is putting up a one-third stake in a US$44 million mutual fund joint venture (JV) with Bank of Beijing (Shanghai: 601169.SS) and another unnamed party. Bank of Beijing has more than 138 million investor accounts and US$380 billion in assets under management. The JV, Bank of Beijing Scotiabank Asset Management, will market mutual funds to Bank of Beijing's 8.2 million retail and institutional customers.

Scotiabank also owns 24.9% of Thanachart Bank, a major automobile financier and retail bank in Thailand.

Scotiabank's domestic unit posted a 16% increase, to CAD455 million, in net income available to common shareholders on a 9% revenue increase. Canadian mortgages, personal and business lending volumes grew. Its international unit posted net income of CAD321 million, up 19%. Provisions for credit losses rose to CAD159 million, from CAD92 million. Return on equity was 21%, down from 21.7%.

Scotiabank's legitimately global retail banking platform and limited exposure to US credit put it in position to produce earnings and dividend growth out performance for the foreseeable future. With its dominant franchise in Canada, its emerging markets and its increasing wealth management business, bolstered by its recent acquisition of E*Trade Canada, Canada's [third largest] bank, has good long-term growth prospects. Bank of Nova Scotia is a buy up to US$58. (It closed Tuesday at $39.14-Editor.)

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