Found a nice article to summarise some points I have been sharing with my friends.
I prefer simplicity and I hold a very simple yet fundamental view: Banks are the pillars of the economy, the life support for all businesses
- I do not mean that banks cannot fail. I am saying that if banks were to fail, there will be serious implications and repercussions in capital markets. Plus SG banks are extremely prudent, lower chance of failure.
- Banks are cheap to buy during turmoil times. Once the market recovers, bank stocks will be traded at a much much higher price, probably overvalued too.
- Lastly with the impending rate hikes, banks will stand to gain the most from higher interest rates. Yet right now, the global market is weak and US is facing problems to increase rates.
For new investors who are looking to set up an investment portfolio, bank stock is something good to begin with.
If you are keen to open a FREE trading account with me and have me as your broker, feel free to contact me via the form on the right hand column.
In any case, I told my friends and clients to monitor the prices. And sometimes I have nice clients calling me to inform me of prices of other counters too. This is how broker and client work together to help each other.
// Lifehacker
In our current time of intermittent financial panics, the banking sector stands out in its unpopularity: major bank stocks are trading well below the book value of those banks. What has everyone so terrified?
The tangible book value of a company should, in essence, be the value of everything tangible the company has—what you could get if you decided to liquidate the company today. In that sense it is odd when the stock market values a company lower than its tangible book value, because it presumes not only that the company does not have growth potential, but even that the theoretical fire sale price of it is too high.
And just about every big bank around the world is now selling below its book value! If you love bargains, Greek banks are trading at one-ninth of their book value. Credit Suisse has reached its lowest stock price in 27 years. In Europe, "banks are trading at only 62 per cent of book." In India, "all public sector banks" are trading below their book value. In the US, Bank of America, Citigroup, Goldman Sachs, and others are priced at a substantial discount to their book value.
The entire investment world is extremely terrified of bank stocks.
Are there theories about why? You bet there are! Tons. Very generally speaking the reason is "people don't think these banks are going to be making money any time soon." But why the extremity of sentiment, that even as we type is causing a global selloff? Some of the more prominent reasons (or theories, if you prefer):
- Oil! Oil prices are mad low. This means lots of energy companies are fucked. It also means that lots of banks that made lots of loans to energy companies when oil prices were higher may be fucked by extension. Investors don't quite know how bad the damage will be from the ongoing oil rout, so they're fleeing banks just in case it turns out to be horrible. Also, the sovereign wealth funds of many nations that depend on oil revenues hold a lot of bank stocks, and some believe that they are being forced to sell now, driving down prices.
- The "yield curve" for banks is looking bad. This means banks can't make as much money lending money as they used to. Unfortunately, lending money is how banks make money. Along with soaking customers with outrageous fees.And lawmakers could be cracking down on those bank fees in the foreseeable future.
- Economic growth is slowing around the world, particularly in emerging markets, which could cause a big slowdown in growth (or big losses) for financial institutions.
- A bunch of hedge fund types all piled into bank stocks late last year and now they are all running out again based on the latest news from the Fed, and this is depressing prices abnormally.
In the end, either one group or the other will turn out to be right, and the other group will be painfully wrong. Let us know if you know which is which.
[Photo: AP]
