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Standard Chartered: The Safest Way To Invest In Asia

 April 03, 2012 09:04 AM


At last week's Investment U Conference in San Diego, I made the case (again) for my favorite Asian growth proxy bank: Standard Chartered (OTC: SCBFF.PK).

Life is full of tests.

When I was first approached to write my Global Gambits column for Forbes Asia, the publisher first suggested a test. Would I put together a column on why a bank can be a great proxy for economic growth in a country or region?

My argument was that big banks have deep and broad tentacles in an economy through making loans, taking deposits and providing all sorts of financial services that lubricate the engines of capitalism.

Their performance does indeed tend to reflect the overall health of the economy.

[Related -Ford Motor Company (F) Q2 Earnings Preview: Light on the Top Line?]

Banks are also a conservative way to play this growth since, if they're managed conservatively, they tend not to go overboard and manage risk pretty well.

Emerging markets, particularly in Asia, have been rebounding nicely so far this year after a lackluster 2011. If you're still gun-shy, consider the conservative strategy of investing in quality financial and banking stocks.

This approach offers several advantages.

First, many Asian financial institutions are in a relatively healthy capital position since they're richly funded by deposits from conservative savers.

[Related -Tripadvisor Inc. (TRIP) Q2 Earnings Preview: On Target Enough?]

Second, Asian banks are well positioned to penetrate untapped markets with an emphasis on consumer outreach and education. Mortgages, credit cards and auto loans are becoming more popular among the three billion Asian consumers who are the backbone of a rising global middle class. As these urban consumers spend more, there's likely to be an increase in demand for financial products.

Every day, approximately 180,000 people in developing countries move from the countryside to cities such as Shanghai, Jakarta and Johannesburg.

And 75 million people from emerging markets join the global middle class every year. Some estimate that by 2030, more than 90% of the world's middle-class consumers will reside in developing nations. The opportunity for financial companies to service these new customers is both clear and compelling.

This is coupled with the extremely low level of penetration of financial products and services into Asian households. For example, Andrew Frost, of Matthews Asia Funds, notes that only five years ago medium- and long-term mortgages didn't exist in Asia (excluding Japan). In addition, Asia's emerging market capital markets are also extremely underdeveloped.


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