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The synchronized global recession continues to hammer the banking sector as a whole; however, certain Latin American banks, and Chilean-based ones in particular, are bucking the trend thus far in 2009. Of the five best performing foreign banks, YTD, South Korea’s Woori Finance is up 16.75%, followed by Argentina’s Banco Macro at 13.77%. Rounding out the list are Chile’s Corpbanca (5%), Banco de Chile (4.92%) and Banco Santander Chile (1%). On the flip side, the five worst performers are all UK and Irish based.
Interesting story in this week’s Economist (“Preparing for tougher times”) underlines a plethora of dour economic forecasts for Latin American economies heading into 2009:
In the past two months, Latin America has seen its stockmarkets crash, currencies wobble and credit start to dry up. That comes on top of falling exports and the plunge in the prices of the commodities it sells to the world. Twisting the knife, less money is being sent home by Latin Americans working abroad.
Specifically:
As recently as October, the IMF expected growth in the region next year of 3.2%. This week the World Bank forecast 2.1%. The same day Morgan Stanley, an investment bank whose Latin American research team is among the more pessimistic about the region, cut its forecast for the seven largest economies in 2009 from growth of 1.5% to a contraction of 0.4% . . . Two things lie behind the bleaker outlook. The first is the continuing steep fall in commodity prices because of worries that China’s economy is stalling. Commodities, from Venezuelan oil to Peruvian minerals, Argentine soya and Brazilian iron ore and orange juice, make up a big chunk of the region’s exports. The second dampener is that banks in Latin America have turned cautious. Many foreign banks are cancelling credit lines to the region, or renewing them for shorter periods or at higher rates. That may be to shore up their battered finances at home, but local banks seem to be following suit.
With that said, the piece admits that “the average conceals wide variations.” For example, while most nations do not have the required reserves necessary to increase government spending in order to spark future higher growth, “Chile is the big exception, having saved $21 billion derived mainly from windfall copper revenues in reserve funds. Its government has unveiled stimulus measures worth $2 billion, including credit lines for small and medium business and, less sensibly, sectoral bail-outs for salmon farmers and housebuilders.” And to a smaller extent, the article notes, Peru also has breathing room vis a vis public spending.
One interesting financial stock is Banco de Chile (NYSE: BCH), which was pretty beat up at the start of the year, but since received an upgrade from Deutsche Bank back in June from Hold to Buy due to expected greater earnings power following the acquisition of Citibank Chile. Its P/E of around 9 is less than Banco Santander-Chile (SAN). Both banks, by the way, were among the top gainers for banks (based on earnings) on the American continent for the third quarter of 2008.
JGW
Frontier Markets 