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.

Thematic (Sector/Industry)

<ul><li>EM Bank shares have lifted off their recent lows, as investor sentiment turns in favour of value in general, and attractive value EM assets in particular</li></ul><ul><li>We highlight 5 EM banks we see as standouts on our bank screens, and in which EM investors have reduced weightings throughout 2020, and are likely to rebuild positions going forward; <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a>, <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a>, <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a>, <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc-cde59529-fb78-4659-85d0-127942b44ba7" target="_blank" data-smartkarma-citation="entities:27581:1" rel="noopener">Sberbank of Russia PJSC (SBER RM)</a> and <a href="https://www.smartkarma.com/entities/turkiye-garanti-bankasi-as" target="_blank" data-smartkarma-citation="entities:25026:1" rel="noopener">Turkiye Garanti Bankasi As (GARAN TI)</a> </li></ul><ul><li>We like <a href="https://www.smartkarma.com/entities/shinhan-financial-group-adr" target="_blank" data-smartkarma-citation="entities:4534:1" rel="noopener">Shinhan Financial Group Adr (SHG US)</a> and <a href="https://www.smartkarma.com/entities/bank-of-china-ltd-h" target="_blank" data-smartkarma-citation="entities:656:1" rel="noopener">Bank Of China Ltd (H) (3988 HK)</a> as other positive re-rating plays, based on attractive valuations and sound balance sheet metrics</li></ul><ul><li>We also believe that EM bank core holdings throughout the pandemic crisis, such as <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a> and <a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" data-smartkarma-citation="entities:440:1" rel="noopener">Bank Central Asia (BBCA IJ)</a>, may, in valuation terms, now be more exposed to negative rotation</li></ul><ul><li>Risks to our view include a worsening of sentiment towards EM equities and banks in particular, due to a deterioration in the pandemic outlook and a worsening of the macro-economic outlook for emerging markets</li></ul>

EM Bank shares have lifted off their recent lows, as investor sentiment turns in favour of value in general, and attractive value EM assets in particularWe highlight 5 EM banks we see as standouts on our bank screens, and in which EM investors have reduced weightings throughout 2020, and are likely to rebuild positions going forward; Credicorp Ltd (BAP US), Banco Do Brasil Sa (BBAS3 BZ), Grupo Financiero Banorte-O (GFNORTEO MF), Sberbank of Russia PJSC (SBER RM) and Turkiye Garanti Bankasi As (GARAN TI) We like Shinhan Financial Group Adr (SHG US) and Bank Of China Ltd (H) (3988 HK) as other positive re-rating plays, based on attractive valuations and sound balance sheet metricsWe also believe that EM bank core holdings throughout the pandemic crisis, such as Kotak Mahindra Bank (KMB IN) and Bank Central Asia (BBCA IJ), may, in valuation terms, now be more exposed to negative rotationRisks to our view include a worsening of sentiment towards EM equities and banks in particular, due to a deterioration in the pandemic outlook and a worsening of the macro-economic outlook for emerging markets

EM Banks: Screening for Value and Resilience

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>EM active managers are running their largest ever overweight in Russian equities, however, absolute weights are drifting lower.</li>
<li>Buying in out-of-benchmark <a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a> has been the driver of the increased overweight. </li>
<li>A retreat from the Energy majors was the cause of the fall in absolute Russian fund weights.</li>
<li>EM active managers are now more exposed to Communication Services stocks then they are Energy stocks for the first time in history,</li>
<li>
<a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc" target="_blank" data-smartkarma-citation="entities:24142:1" rel="noopener">Sberbank Of Russia Pjsc (SBER LI)</a> is still the most widely held stock in Russia, however managers have trimmed exposure. </li>
<li>Ownership in <a href="https://www.smartkarma.com/entities/magnit-pjsc" target="_blank" data-smartkarma-citation="entities:24632:1" rel="noopener">Magnit PJSC (MGNT LI)</a> continues to rise from a very low base.</li>
</ul>Taken from our Global Emerging Markets analysis, covering 243 active strategies with combined AUM of $360bn.


EM active managers are running their largest ever overweight in Russian equities, however, absolute weights are drifting lower.
Buying in out-of-benchmark Yandex (YNDX US) has been the driver of the increased overweight. 
A retreat from the Energy majors was the cause of the fall in absolute Russian fund weights.
EM active managers are now more exposed to Communication Services stocks then they are Energy stocks for the first time in history,

Sberbank Of Russia Pjsc (SBER LI) is still the most widely held stock in Russia, however managers have trimmed exposure. 
Ownership in Magnit PJSC (MGNT LI) continues to rise from a very low base.
Taken from our Global Emerging Markets analysis, covering 243 active strategies with combined AUM of $360bn.

Russia:  Record Overweight, But Old Guard Losing Ground.

<ul>
<li>Banks in EM need to be prepared for the deteriorating credit quality outlook, as the Covid-19 driven contraction in GDP growth and economic activity takes hold</li>
<li>In this report, we look at the 1Q20 data in terms of balance sheet resilience – leverage ratio as well as NPL ratio and coverage – and which banks have been most proactive in the bolstering of loan loss provisioning</li>
<li>We then apply our valuation screen to see which attractively valued stocks – in terms of book value versus returns – are best prepared for the potential credit quality challenges, from loan loss provisioning and capital buffer perspectives</li>
<li>Our conclusions are that the best ranked are <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a> in Asia, <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a> and <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> in LatAm and <a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> of Egypt in CEEMEA</li>
<li>We also identify another four EM banks that rank solidly in the “runners up” category, and which we discuss in the report</li>
<li>By contrast, the three Indian banks included in this report generally rank poorly</li>
<li>Risks to our positively viewed EM banks include a more protracted and deeper hit to emerging economies adding to NPLs and needing further big bad loan provision charges, along with lower loan volumes and tighter lending spreads</li>
</ul>


Banks in EM need to be prepared for the deteriorating credit quality outlook, as the Covid-19 driven contraction in GDP growth and economic activity takes hold
In this report, we look at the 1Q20 data in terms of balance sheet resilience – leverage ratio as well as NPL ratio and coverage – and which banks have been most proactive in the bolstering of loan loss provisioning
We then apply our valuation screen to see which attractively valued stocks – in terms of book value versus returns – are best prepared for the potential credit quality challenges, from loan loss provisioning and capital buffer perspectives
Our conclusions are that the best ranked are China Merchants Bank H (3968 HK) in Asia, Credicorp Ltd (BAP US) and Grupo Financiero Banorte-O (GFNORTEO MF) in LatAm and Commercial International Bank (COMI EY) of Egypt in CEEMEA
We also identify another four EM banks that rank solidly in the “runners up” category, and which we discuss in the report
By contrast, the three Indian banks included in this report generally rank poorly
Risks to our positively viewed EM banks include a more protracted and deeper hit to emerging economies adding to NPLs and needing further big bad loan provision charges, along with lower loan volumes and tighter lending spreads


Emerging Market Banks: Measuring Their Response and Resilience to the Tougher Credit Quality Outlook

The first quarter of 2020 was a challenging one for Global Emerging Market active managers. <ul>
<li>Active GEM fund Q1 Returns -25.05% on average vs -23.7% for the benchmark.</li>
<li>1 in 3 underperformed on the quarter.</li>
<li>Aggressive Growth strategies beat Value by 4.5% on average.</li>
<li>China the key driver of underperformance.</li>
<li>Underweights in <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> proved costly.</li>
</ul>

The first quarter of 2020 was a challenging one for Global Emerging Market active managers. 
Active GEM fund Q1 Returns -25.05% on average vs -23.7% for the benchmark.
1 in 3 underperformed on the quarter.
Aggressive Growth strategies beat Value by 4.5% on average.
China the key driver of underperformance.
Underweights in Tencent Holdings (700 HK) and Alibaba Group (BABA US) proved costly.


GEM Fund Q1 2020 Performance Review: Active Funds Suffer as China Outperforms

In this analysis, we highlight the activity of Active managers around the period of the GFC between 2008 and 2009.  We find that managers aggressively moved from cyclicals to defensive through 2008, however quickly moved back in to cyclicals following the recovery in 2009.  The spread of cyclicals over defensives was at similar levels heading in to the COVID-19 crisis as it was just before the GFC. This analysis takes on two parts.  Firstly, we screen our active fund universe for the preferred defensive sectors and provide a list of the favoured stocks within those sectors.  We would expect these to be the go to sectors during this period of uncertainty and likely global recession.  Secondly, we look for the preferred cyclical sectors and the stocks within those sectors.  When market conditions start improving, we expect these stocks to be aggressively bought as managers look to rebalance portfolios.

In this analysis, we highlight the activity of Active managers around the period of the GFC between 2008 and 2009.  We find that managers aggressively moved from cyclicals to defensive through 2008, however quickly moved back in to cyclicals following the recovery in 2009.  The spread of cyclicals over defensives was at similar levels heading in to the COVID-19 crisis as it was just before the GFC. This analysis takes on two parts.  Firstly, we screen our active fund universe for the preferred defensive sectors and provide a list of the favoured stocks within those sectors.  We would expect these to be the go to sectors during this period of uncertainty and likely global recession.  Secondly, we look for the preferred cyclical sectors and the stocks within those sectors.  When market conditions start improving, we expect these stocks to be aggressively bought as managers look to rebalance portfolios. 

Echoes of 2008? Cyclicals Vs Defensives.  Most Favoured Sectors Among EM Active Funds.

Russia

Sberbank of Russia PJSC attracts deposits and offers commercial banking services. The Bank offers time deposits, corporate banking, securities brokerage, credit, foreign exchange services, and sponsors credit cards.

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Sberbank of Russia PJSC (SBER LI)

EM Banks: Screening for Value and Resilience

We highlight 5 EM banks we see as standouts on our bank screens, Credicorp, Banco do Brasil, Banorte, Sberbank and Garanti. EM investors reduced...

Victor Galliano

Russia: Record Overweight, But Old Guard Losing Ground.

EM active managers are running their largest ever overweight in Russian equities. Buying in out-of-benchmark Yandex has been the key driver, but a...

Steven Holden

Emerging Market Banks: Measuring Their Response and Resilience to the Tougher Credit Quality Outlook

Banks in EM need to be prepared for the deteriorating credit quality outlook, as the Covid-19 driven contraction in GDP growth and economic...

Victor Galliano

GEM Fund Q1 2020 Performance Review: Active Funds Suffer as China Outperforms

The first quarter of 2020 was a challenging one for Global Emerging Market active managers. Active GEM fund Q1 Returns -25.05% on average vs...

Steven Holden

Echoes of 2008? Cyclicals Vs Defensives. Most Favoured Sectors Among EM Active Funds.

In this analysis, we highlight the activity of Active managers around the period of the GFC between 2008 and 2009. We find that managers...

Steven Holden

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