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Should Finance Investors to Switch to Foreign Bank Stocks Now?
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After President Donald Trump’s victory, expectations of lesser regulations, federal corporate tax rate cut, stimulating domestic investments and anticipation of multiple Fed rate hikes have boosted investors’ confidence. These, in turn, led the U.S. banking stocks to rally. Further, following the presidential election, mortgage rates were on an upswing, as money was pulled out of the bond market and yields on 10-year Treasuries climbed.
However, earlier this week, the U.S. banks came under pressure with the flattened Treasury yield curve and running fears among investors due to the delay in implementation of Trump’s policies.
The recent sell-off in banking stocks followed an upswing in bonds which acted as a headwind. Moreover, a flatter yield curve turned negative for the U.S. lenders as borrowing is conducted on short-term markets and lending for longer periods.
Notably, ambiguity over the healthcare bill has also generated concerns among investors as implementation of other policies, including liberalizing of financial regulations, might take longer than expected.
So would it be wise to stay away from the financial stocks? The answer is no.
It will be a good idea to switch to foreign bank stocks instead. These companies, mainly operating in their home countries, are largely influenced by local economic growth.
Moreover, foreign banks’ success in reducing costs by realigning business and growing overall lending can convince investors. In addition, slightly better economic growth has helped them to enhance deposits and fortify asset quality, as consumers and businesses became relatively less levered.
This is clearly evident from the Zacks categorized Banks-Foreign industry’s 14.7% gain over the past six months as compared with just 7.7% gain of the S&P 500.
While foreign bank stocks are riskier than domestic bank stocks due to the uncertainties related to currency devaluations, different business practices and lack of transparency, a comprehensive fundamental and economic analysis shows that some foreign banks can be more rewarding in the current scenario.
Moreover, the current Zacks Industry Rank for foreign banks shows significant upside potential.
Studies have divulged that an average stock in a strong industry is likely to perform better than an exceptional stock within an industry that is out of favor with investors. Therefore, the combination of top-rated industries and stocks will surely enhance your investment portfolio.
This 59-company industry carries a Zacks Industry Rank of #50, which places it at the top 20% of the 256 Zacks classified industries.
We have handpicked some foreign banks with the help of Zacks Stock Screener. We have selected foreign banks that have market capitalization of $5 billion or more, and carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). With the help of our Style Score System, we further narrowed down the list to ensure a Value Style Score of ‘A’ or ‘B.’
Bancolombia S.A. (CIB - Free Report) provides various banking products and services to individual, corporate, and government customers. It has about 1,274 branches and operates 5,080 automatic teller machines.
Zacks Rank: #2 Home Country: Colombia Market Cap: $9.27 billion Value Score: ‘B’
Credit Suisse Group AG provides various financial services globally. The company offers its products and services to private, corporate, institutional, high-net-worth and ultra-high-net-worth individuals, small and medium-sized enterprises, governments and institutional investors, as well as affluent and retail clients.
Zacks Rank: #2 Home Country: Switzerland Market Cap: $31.26 billion Value Score: ‘B’
DBS Group Holdings Ltd (DBSDY - Free Report) provides various commercial banking and financial services in Singapore, Hong Kong, rest of Greater China, South and Southeast Asia, and globally. The company operates about 280 branches across 18 markets.
Zacks Rank: #2 Home Country: Singapore Market Cap: $34.33 billion Value Score: ‘A’
Banco Santander, S.A. (SAN - Free Report) provides various retail and commercial banking products and services for individual and corporate clients worldwide. The company operates through 12,235 branches.
Zacks Rank: #2 Home Country: Spain Market Cap: $87.49 billion Value Score: ‘A’
Shinhan Financial Group Co., Ltd. (SHG - Free Report) provides various financial products and services in South Korea and globally. The company operates through a network of around 900 service centers, 6,816 ATMs, three cash dispensers, and 24 digital kiosks.
Zacks Rank: #1 Home Country: South Korea Market Cap: $20.30 billion Value Score: ‘A’
Erste Group Bank AG (EBKDY - Free Report) provides a range of banking and other financial services to the retail and corporate customers in Austria, Central and Eastern Europe, and worldwide. It operates through about 2,700 branches in the countries of Austria, the Czech Republic, Slovakia, Romania, Hungary, Croatia, and Serbia.
Zacks Rank: #2 Home Country: Austria Market Cap: $13.78 billion Value Score: ‘B’
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Should Finance Investors to Switch to Foreign Bank Stocks Now?
After President Donald Trump’s victory, expectations of lesser regulations, federal corporate tax rate cut, stimulating domestic investments and anticipation of multiple Fed rate hikes have boosted investors’ confidence. These, in turn, led the U.S. banking stocks to rally. Further, following the presidential election, mortgage rates were on an upswing, as money was pulled out of the bond market and yields on 10-year Treasuries climbed.
However, earlier this week, the U.S. banks came under pressure with the flattened Treasury yield curve and running fears among investors due to the delay in implementation of Trump’s policies.
The recent sell-off in banking stocks followed an upswing in bonds which acted as a headwind. Moreover, a flatter yield curve turned negative for the U.S. lenders as borrowing is conducted on short-term markets and lending for longer periods.
Notably, ambiguity over the healthcare bill has also generated concerns among investors as implementation of other policies, including liberalizing of financial regulations, might take longer than expected.
So would it be wise to stay away from the financial stocks? The answer is no.
It will be a good idea to switch to foreign bank stocks instead. These companies, mainly operating in their home countries, are largely influenced by local economic growth.
Moreover, foreign banks’ success in reducing costs by realigning business and growing overall lending can convince investors. In addition, slightly better economic growth has helped them to enhance deposits and fortify asset quality, as consumers and businesses became relatively less levered.
This is clearly evident from the Zacks categorized Banks-Foreign industry’s 14.7% gain over the past six months as compared with just 7.7% gain of the S&P 500.
While foreign bank stocks are riskier than domestic bank stocks due to the uncertainties related to currency devaluations, different business practices and lack of transparency, a comprehensive fundamental and economic analysis shows that some foreign banks can be more rewarding in the current scenario.
Moreover, the current Zacks Industry Rank for foreign banks shows significant upside potential.
Studies have divulged that an average stock in a strong industry is likely to perform better than an exceptional stock within an industry that is out of favor with investors. Therefore, the combination of top-rated industries and stocks will surely enhance your investment portfolio.
This 59-company industry carries a Zacks Industry Rank of #50, which places it at the top 20% of the 256 Zacks classified industries.
We have handpicked some foreign banks with the help of Zacks Stock Screener. We have selected foreign banks that have market capitalization of $5 billion or more, and carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). With the help of our Style Score System, we further narrowed down the list to ensure a Value Style Score of ‘A’ or ‘B.’
(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)
6 Foreign Bank Stocks to Buy Now
Bancolombia S.A. (CIB - Free Report) provides various banking products and services to individual, corporate, and government customers. It has about 1,274 branches and operates 5,080 automatic teller machines.
Zacks Rank: #2
Home Country: Colombia
Market Cap: $9.27 billion
Value Score: ‘B’
Credit Suisse Group AG provides various financial services globally. The company offers its products and services to private, corporate, institutional, high-net-worth and ultra-high-net-worth individuals, small and medium-sized enterprises, governments and institutional investors, as well as affluent and retail clients.
Zacks Rank: #2
Home Country: Switzerland
Market Cap: $31.26 billion
Value Score: ‘B’
DBS Group Holdings Ltd (DBSDY - Free Report) provides various commercial banking and financial services in Singapore, Hong Kong, rest of Greater China, South and Southeast Asia, and globally. The company operates about 280 branches across 18 markets.
Zacks Rank: #2
Home Country: Singapore
Market Cap: $34.33 billion
Value Score: ‘A’
Banco Santander, S.A. (SAN - Free Report) provides various retail and commercial banking products and services for individual and corporate clients worldwide. The company operates through 12,235 branches.
Zacks Rank: #2
Home Country: Spain
Market Cap: $87.49 billion
Value Score: ‘A’
Shinhan Financial Group Co., Ltd. (SHG - Free Report) provides various financial products and services in South Korea and globally. The company operates through a network of around 900 service centers, 6,816 ATMs, three cash dispensers, and 24 digital kiosks.
Zacks Rank: #1
Home Country: South Korea
Market Cap: $20.30 billion
Value Score: ‘A’
Erste Group Bank AG (EBKDY - Free Report) provides a range of banking and other financial services to the retail and corporate customers in Austria, Central and Eastern Europe, and worldwide. It operates through about 2,700 branches in the countries of Austria, the Czech Republic, Slovakia, Romania, Hungary, Croatia, and Serbia.
Zacks Rank: #2
Home Country: Austria
Market Cap: $13.78 billion
Value Score: ‘B’
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere
1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging
phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>