Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

<ul>
<li>The prospect of Russia being excluded from key emerging market indices is very real, in our view, and here we focus on the iShares MSCI Emerging Markets ETF</li>
<li>The main beneficiaries of an index re-balancing would be the dominant EM Asian economies, and select African economies, but we cannot disregard LatAm and in particular we concentrate on financials</li>
<li>Largest weightings aside, we highlight our preferred LatAm financial names based on fundamentals; Banco do Brasil, B3, BanColombia and Banco del Bajio, we also remove Banorte from the sell list</li>
</ul>


The prospect of Russia being excluded from key emerging market indices is very real, in our view, and here we focus on the iShares MSCI Emerging Markets ETF
The main beneficiaries of an index re-balancing would be the dominant EM Asian economies, and select African economies, but we cannot disregard LatAm and in particular we concentrate on financials
Largest weightings aside, we highlight our preferred LatAm financial names based on fundamentals; Banco do Brasil, B3, BanColombia and Banco del Bajio, we also remove Banorte from the sell list


EM Banks and Financials – The Rebalancing in Index Weightings from the LatAm Perspective

<ul>
<li>Brazil’s consumer credit quality trends to January deteriorated relative to the previous month, with corporate credit quality worsening only slightly </li>
<li>System loan growth was 16.4% for the twelve months to January which was very similar to the YoY rate for December (16.3%), totally due to the faster consumer loan growth </li>
<li>The BCB is in the latter stages of the benchmark rate hiking cycle, which is impacting credit quality, especially in consumer categories; nonetheless, Brazilian banks benefit from higher loan spreads</li>
</ul>


Brazil’s consumer credit quality trends to January deteriorated relative to the previous month, with corporate credit quality worsening only slightly 
System loan growth was 16.4% for the twelve months to January which was very similar to the YoY rate for December (16.3%), totally due to the faster consumer loan growth 
The BCB is in the latter stages of the benchmark rate hiking cycle, which is impacting credit quality, especially in consumer categories; nonetheless, Brazilian banks benefit from higher loan spreads


Brazil Banking Data to January-End in Twelve Charts – Consumer NPLs Reflect Higher Benchmark Rates

<ul>
<li>Brazil’s consumer credit quality headwinds to December seemed to lessen relative to the previous month, with corporate credit quality remaining benign</li>
<li>System loan growth was 16.5% for the full year to December which was an acceleration from the YoY rate for November (15.6%), largely due to the faster consumer loan growth</li>
<li>We expect a big hike in the benchmark rate today to counter inflation, which could impact credit quality in 2022; nonetheless, banks are well provisioned and loan yields should rise</li>
</ul>


Brazil’s consumer credit quality headwinds to December seemed to lessen relative to the previous month, with corporate credit quality remaining benign
System loan growth was 16.5% for the full year to December which was an acceleration from the YoY rate for November (15.6%), largely due to the faster consumer loan growth
We expect a big hike in the benchmark rate today to counter inflation, which could impact credit quality in 2022; nonetheless, banks are well provisioned and loan yields should rise


Brazil Banking Data Trends to December in Twelve Charts – Consumer Credit Quality Less Concerning

<ul>
<li>Brazil’s credit quality trends to November showed a broader deterioration in consumer credit categories than in October</li>
<li>System loan growth was 15.6% on a YoY basis in November which was a slowdown from October (16%), largely due to the deceleration in corporate loan growth</li>
<li>Benchmark rates continue to rise sharply to combat inflation, so we expect consumer credit quality to come under pressure going forward; nonetheless, commercial banks are well provisioned</li>
</ul>


Brazil’s credit quality trends to November showed a broader deterioration in consumer credit categories than in October
System loan growth was 15.6% on a YoY basis in November which was a slowdown from October (16%), largely due to the deceleration in corporate loan growth
Benchmark rates continue to rise sharply to combat inflation, so we expect consumer credit quality to come under pressure going forward; nonetheless, commercial banks are well provisioned


Brazil Banking Data Trends to November in Ten Charts – Consumer Credit Delinquencies Worsen Further

<ul>
<li>Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations</li>
<li>Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX</li>
<li>In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers</li>
</ul>


Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations
Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX
In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers


2022 High Conviction Ideas in FinTech & Financials

Brazil

Banco do Brasil S.A. attracts deposits and offers retail and commercial banking services.  The Bank offers consumer, commercial, and agribusiness loans, asset management, foreign exchange, private pension, insurance, lease financing, credit cards, and Internet banking services.

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Banco do Brasil (BBAS3 BZ)

EM Banks and Financials – The Rebalancing in Index Weightings from the LatAm Perspective

Potential Russian shares exclusion from indices is real, with Asian EMs set to gain big, but do not disregard LatAm; our preferred financials are...

Victor Galliano

Brazil Banking Data to January-End in Twelve Charts – Consumer NPLs Reflect Higher Benchmark Rates

January Brazil banks data showed a worsening consumer NPL ratio, which is impacted by the sharp interest rate rise, with the sector's offset to...

Victor Galliano

Brazil Banking Data Trends to December in Twelve Charts – Consumer Credit Quality Less Concerning

Brazilian NPL data for December was more benign than November, especially in consumer credit; the challenge is how sharply rising benchmark rates...

Victor Galliano

Brazil Banking Data Trends to November in Ten Charts – Consumer Credit Delinquencies Worsen Further

November data gives us early signals about worsening consumer credit delinquencies (Figs 2, 3 & 4), with these trends being exacerbated by BCB’s...

Victor Galliano

2022 High Conviction Ideas in FinTech & Financials

Our 2022 high conviction ideas include buys on Sberbank, Banco do Brasil and HDFC Bank, as well as BBVA, Banco BPM, B3, SGX, Mastercard and...

Victor Galliano

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