Global Guru Banks on Asia

02/17/2015 10:00 am EST

Focus: STOCKS

Yiannis Mostrous

Editor, The Capitalist Times

Patient investors with a longer time horizon should take advantage of reasonable valuations to add exposure to Asia’s emerging markets, suggests Yiannis Mostrous, editor of Capitalist Times, who includes two banking plays among his current global favorites.

HDFC Bank (IN: HDFCB), (NYSE: HDB)

HDFC is India’s second-largest private bank and best-run financial institution; it has amassed a network of more than 3,400 branches and 11,000 ATMs in 2,100 cities.

The government continues to push initiatives to spur economic growth, but the situation on the ground has improved at a relatively slow pace. Nevertheless, the government’s commitment to reviving the economy should turn the tide gradually.

HDFC Bank remains our top pick for its above-average growth rate and relatively low cost of funds, an advantage that translates into higher net interest margins.

The bank has sought to raise US$1.6 billion in fresh funds to boost its tier-1 capital ratio to more than 13%. This buffer will enable HDFC Bank to take advantage of growth opportunities as economic activity heats up over the next six to 12 months and demand for working-capital loans grows.

Given its market share, extensive footprint, and high-quality management team, the company offers upside leverage to India’s economic recovery and long-term growth story. HDFC Bank’s ADR rates a buy up to US$60.00.

Shinhan Financial Group (KS: 055550), (NYSE: SHG)

Shinhan is one of South Korea’s four largest financial institutions. With a foothold in every important product category and a long track record of effective risk management, Shinhan Financial should be able to take advantage of increasing loan demand from corporate and retail customers.

Steady risk management has translated into sterling asset quality for Shinhan Financial, while its diversification provides a cushion against weakness in a particular business. 

The company also holds a large portfolio of investment securities—worth about US$530 million—that management plans to sell over the next couple of years, providing an earnings boost.

The company has a long history of investor-friendly policies and we wouldn’t be surprised if the financial institution were to unveil a more shareholder-friendly dividend policy down the line.

Shares of Shinhan Financial Group could enjoy further multiple expansion, fueled by South Korea’s recovering economy; the ADR rates a buy up to US$50.00.

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