These 6 Foreign Companies Are The Biggest Shareholders In Indonesia’s Banks

Foreign institutions are attracted to Indonesian banks

Indonesia’s (EIDO) crowded banking market has remained attractive for foreign financial institutions in the past and many of them have acquired controlling stakes in local lenders. Most of these investors are financial institutions based in Asian countries like South Korea, Japan and China. Some are Middle Eastern firms such as the Qatar National Bank that are interested in picking up stakes in Islamic banks internationally.

Recent acquisitions of local banks by these foreign institutions are driving consolidation in the Indonesian banking sector. The Financial Services Authority of Indonesia, OJK, had previously encouraged mergers of small banks or acquisitions by foreign institutions for these lenders to meet the minimum capital requirement set forth.

However, rapid economic growth in Indonesia coupled with an under developed and fragmented banking sector attracted foreign lenders from Asia to the country in droves. The country’s central bank then imposed a 40% single ownership cap in 2012, discouraging large foreign investments in the country’s baking sector.

With an economic growth target of more than 5.3% for 2018, the Indonesian banking sector offers high growth potential to investors. The country’s banks are more lucrative compared to other Southeast Asian markets. Banks in the Indonesian market generated average return on assets (ROA) of 2.5% higher than other South East Asian nations.

Largest foreign shareholders in Indonesian banks

1)    China Construction Bank

China Construction Bank holds 60% of stake in Bank Windu that it acquired in 2016. Post the acquisition; Bank Windu was renamed to PT Bank China Construction Bank Corporation Indonesia.

China Construction bank is among the largest banks in China and among the top five in the world by market cap. The company entered Indonesia to strengthen its presence in South East Asia and expand its global business.

Bank Windu operates a network of 82 branches in Indonesia. In 2016, the bank had $905 million in assets and net interest margins of 4.9%.

China Construction Bank trades on HongKong and Shanghai stock exchanges with tickers 0939.HK and 601939.SS . Bank Windu trades as PT Bank China Construction Bank Indonesia Tbk on the Jakarta Stock Exchange with ticker MCOR.JK.

2)    Temasek

Temasek, Singapore’s government investment firm, is one of the biggest institutional investors in the world. The company owns 68% in Indonesia’s fifth largest bank PT Bank Danamon that it acquired in 2003. The company is in talks with Japan based Mitsubishi UFJ Financial Group to sell 40% of its stake for around ($1.8 billion) 200 billion yen.

The firm, through its subsidiary Sorak Financial, held a 55% stake in PT Bank Internasional Indonesia (BII) which it sold to Maybank in 2008.

Temasek had also attempted to acquire a stake in PT Bank Permata in 2004.

3)    Maybank

Malaysia’s largest financial institution, Malayan Banking Bhd, holds a controlling stake in Bank Internasional Indonesia (BII) that it bought from Temasek and South Korea’s Kookmin Bank in 2008 for $1.5 billion. The company owns nearly 97% of Indonesia’s sixth biggest lender.

Maybank trades on Kuala Lumpur and Munich stock exchanges with tickers 1155.KL and MYB.MU. The company’s shares also trade on OTC Markets with the tickers MLYBY and MLYNF. Bank Internasional Indonesia (BII) trades as PT Bank Maybank Indonesia Tbk on the Jakarta Stock Exchange with ticker BNII.JK.

4)    MUFG

Mitsubishi UFJ Financial Group, a subsidiary of Bank of Tokyo-Mitsubishi UFJ, has proposed to buy a 40% stake in Bank Danamon Indonesia from Temasek for $1.8 billion (200 billion yen). As per Reuters sources, MUFG would begin investing in Bank Danamon starting April 2018.

MUFG has been expanding its presence in South East Asia as it faces sluggish growth in its home market. The company also holds stakes in Vietnam’s Vientinbank, Thailand’s Bank of Ayudhya (BAY.BK) and Security Bank Corp (SECB.PS) of the Philippines. The company generated 31% of its operating profits from its global banking business in 2016.

MUFG trades on New York and Munich stock exchanges with tickers MTU and MFZ.F. The company’s shares also trade on OTC Markets with the ticker MBFJF. Bank Danamon trades as PT Bank Danamon Indonesia Tbkon the Jakarta and Frankfurt Stock Exchange with tickers BDMN.JK and HX9.F.

5)    Cathay Financial

Taiwan’s largest financial holdings company Cathay Financial holds 40% in Bank Mayapada Internasional Tbk PT that it bought for $278 million in 2016. Bank Mayapada is the fifteenth largest Indonesian bank by assets.

The acquisition of Bank Mayapada is part of Cathay Financial’s strategy to expand its presence out of Taiwan’s overcrowded banking market.

Cathay Financial trades on Taiwan and London stock exchanges with tickers 2882.TW and CFHS.IL. The company’s shares also trade on OTC Markets with the tickers CHYFF and CHYYY. Bank Mayapada trades as PT Bank Mayapada Internasional Tbk on the Jakarta Stock Exchange with ticker MAYA.JK.

6)    Shinhan Bank

South Korea based Shinhan Bank owns 98% stake in Bank Metro Express and 75% stake in Indonesia’s Centratama Nasional Bank . The company bought these stakes in 2016 and 2015 respectively as part of its push to expand into Southeast Asia. Shinhan Bank is part of Shinhan Financial Group. Post the acquisition, Bank Metro Express was renamed to Bank Shinhan Indonesia.

Currently, Shinhan Bank trades under the parent company Shinhan Financial Group on the South Korean, Frankufrt, Johannesburg and Mexican Stock Exchanges with tickers 055550.KS, KSF1.F, SHG and SHGN.MX respectively.

These 4 Chinese Fintech Stocks Are Tanking After New Regulatory Crackdown On Online Lending

The Troubled Ones

With China (FXI)(MCHI) tightening its regulations, shares of some listed fintech companies are suddenly under fire. As a result, a handful of the country’s largest fintech startups are also eyeing initial public offerings (IPOS) overseas. The country’s regulators have now stopped all approvals for online lending companies in an effort to tighten controls around Internet finance.

New regulations by the Chinese government direct local governments to halt approval of licenses to companies that provide online lending services, as well as forbidding these lenders to operate outside the province where they are registered. In the past, online lenders have faced scrutiny for providing loans without adequate due diligence, further burdening China’s bad debt issues. Most of these lenders charge high rates of interest. Even though existing companies will continue to operate, they will likely be subject to heavy regulations. “[Regulators] are very scared that a lot of these firms have very little internal control and serious oversight as to who they are lending money,” said Christopher Balding, a professor at Peking University’s HSBC Business School.

In the recent years, fintech companies that provide online lending and investment products have mushroomed in China, pushing the need for stricter regulations in this space. According to government sources, there are currently nearly 2,700 online lenders in China that service nearly 10 million customers. The country does not have a standard credit rating system currently, making it difficult for small borrowers to get access to loans. This has led to the fast growth of online lenders and also the need for tighter scrutiny after cases of fraud.

However, these regulations sparked a sell-off in shares of these fintechs, including several that have recently listed in New York.

Stocks affected

In the past few years, investors have shown a large appetite for fintech companies as they have gained hefty valuations in listings in New York and Hong Kong. The announcement regarding stricter regulations and curbs on new licenses sparked a sharp fall in Chinese listed fintechs.

Companies including Zhongan (6060.HK), Qudian (QD), Ppdai (PPDF) and Jianpu Technology (JT) have listed their shares in the past few months. Further, Chinese companies like Xiangyuan Culture Group, a Shanghai-listed entertainment and leisure company, and Renhe Pharmacy Group, a Shenzhen-listed firm have also laid out plans to spin off their micro lending units.

Shares of online insurer ZhongAn, that listed in September in Hong Kong dropped nearly 4%. The company’s shares have returned 17% since its $1.8 billion IPO. This was also Asia’s largest Fintech IPO in 2017. 

Comparatively, New York-listed shares of Alibaba (BABA) backed Chinese online microlender Qudian tumbled nearly 16% on November 22. The company’s shares have returned -33% since its IPO. The company raised $900 million in October in one of the largest Chinese IPOs in the United States in 2017 so far.

Meanwhile, shares of fintech companies Ppdai Group and Jianpu Technology that listed this month tanked 24% and 13% following the news.

Ppdai Group is an online microlender that raised $221 million in a public issue earlier in November on the NASDAQ exchange.

Jianpu Technology raised $190 million by listing 22.5 million ADRs on November 16. The company operates an open source platform for financial products in China.

IPO Update: China’s Second Largest Mobile Search Engine Is Now Listed In New York

Sogou’s IPO debuts in New York

China’s second largest mobile search engine, Sogou recently listed its ADR on the New York Stock Exchange under the ticker SOGO. The company offered 45 million shares raising $585 million from the IPO. The IPO priced at $13, at the top end of the price range of $11 to $13, valuing the company at $5 billion. J.P. Morgan, Credit Suisse, Goldman Sachs (Asia) and CICC acted as lead managers on the deal.

Chinese IPOs have been largely unsuccessful in garnering investor interest in international listings, but analysts expect Sogou to turn the tide.

Shares of the company had a relatively uneventful day of trade at debut (as on November 9) with the stock closing at $13.85 after a 4% increase in value mid-day. In the following days of trade (as on November 21) shares of Sogou have gained 5.4%. Subsequently, its market cap has increased to $5.4 billion.

Sogou, founded in 2005 by China’s leading internet firm Sohu.com currently runs China’s second largest mobile search engine, competing with Baidu and Alibaba owned UCWeb. Sogou’s search engine commands 6.6% market share in China, according to research firm Analysys. Worldwide leaders Facebook, Google and Twitter are banned in China.

In 2016, Sogou reported revenues of $660 million and $591 million in 2015. In the first nine months of 2017, the company has earned revenues of $630 million. In 2016, the company earned $56 million in profit, down from $99.5 million in 2015. The company derives its revenues primarily from advertising.

The company in its IPO prospectus expects the Chinese search engine market to grow to $30.7 billion by 2010, from $11.5 billion in 2016.

Growing AI ambitions?

The IPO of Sogou has put it in a favorable position to pursue ambitions in growing its artificial intelligence business inorganically through acquisitions of startups. CEO Wang Xiaochuan said in an interview, “this IPO has opened a window for our globalization.” He continued, “Globally, we will look at M&A and partnerships with companies who have the technology to improve our AI.”

Sogou’s ambitions are driven by a policy push by the Chinese government to become the world leader in AI by 2030. Tencent holdings, Sogou’s largest shareholder have also been pursuing global ambitions to grow its AI capabilities. The company has invested $2 billion in Snap (SNAP) as part of this strategy.

5 Indian Companies Set To Gain Most From Moody’s Rating Upgrade

Moody’s upgrades India

Global Credit Rating agency Moody’s upgraded India’s sovereign credit rating by one notch from Baa3, the lowest investment grade rating to Baa2 on November 17. Moody’s also changed its outlook on the country from stable to positive, sending out an optimistic note to foreign investors interested in the country. Further, the agency also upgraded India’s local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. 

Following the announcement, Indian stock markets rallied and the currency appreciated. The benchmark Nifty Index gained 0.7% while the Bank Nifty hit record highs after a 1.1% surge. The rupee appreciated 0.9%. It also sent bond yields lower as a rating upgrade means further confidence in the government’s ability to service its debt obligations, thereby warranting low risks on sovereign bonds. Additionally, it also leads to a lower cost of borrowing for the government as well as Indian companies seeking funds from abroad at a time when interest rates in the domestic market remain high.

Companies to gain most

Export-oriented companies that need dollar-denominated debt stand to benefit most, as a higher credit rating would lead to favorable risk profile thereby lowering their cost of borrowings. Moody’s also upgraded long-term credit ratings of Export-Import Bank of India, HDFC Bank, Indian Railway Finance Corporation Limited (IRFC), SBI, BPCL, HPCL, Indian Oil , and Petronet LNG from Baa3 to Baa2.

Aashish Kamat of UBS India expects large-cap stocks like HDFC (HDB) and Reliance Industries and public sector banks like State Bank of India and Bank of Baroda to be the top beneficiaries from Moody’s rating upgrade. In a note to investors he stated, “There could be a direct 20 basis points to 50 basis points lowering in the overseas rate of borrowing for these companies.” In 2017 till date, these stocks have returned 52.3%, 69.7%, 36.1% and 20% respectively.

Kaku Nakhate, India country head, Bank of America believes the upgrade will give public sector enterprises, and banks a significant advantage to operate with lower interest rates. Further, it will also enable to the Indian government to borrow at cheaper interest rates to put their infrastructure related projects into action.

Ashish Vaidya, head of markets for India at DBS Bank expects Moody’s upgrade to drive flows to India’s bond markets. “A new set of investors may start participating in their bond sales particular after the rating upgrade,” he said.

“Top-rated Indian companies will be able to take advantage of the rating upgrade. These companies are likely to see marginal cost benefits when they will raise money from overseas markets.”

The biggest Indian companies by market cap are Reliance Industries, Tata Consultancy Services, HDFC Bank, ITC Limited and State Bank of India. These stocks have market caps of $91 billion, $79.8 billion, $72.7 billion, $48.4 billion and $44.9 billion respectively. In 2017 so far, these stocks have gained 69.7%, 16.7%, 52.3%, 8.4% and 36.1%.

ETFs offering exposure to India

Year to date, the MSCI India Index has surged 24.5% while the Indian benchmark Nifty 50 Index has gained 26%, outperforming most emerging markets.

Foreign investors seeking exposure in India could invest in country-focused ETFs that offer diversification through investment in a single US security. Alternatively, investors wanting direct exposure could consider ADRs of Indian companies.

Investors looking to make the most of the India growth wave through ETFs can consider the iShares MSCI India ETF (INDA), iShares India 50 ETF (INDY) and the PowerShares India Portfolio (PIN). YTD, these ETFs have returned 30.2%, 31.4%, and 30.7% respectively.

 

 

The 5 Biggest IPOs Ever Launched In The GCC: Where Are They Now?

After only 3 public issuances in the entire 2016 calendar year, GCC region IPOs appear to be picking back up. Local companies raised $700 million amongst 13 initial public offerings (IPOs) during the first-half of 2017, according to consultancy firm EY.

The UAE and Saudi Arabia are set to be the biggest contributors going forward with a number of announced and rumored IPOs that could be on the books for the coming year including Adnoc, Abu Dhabi Ports, Emirates Global, Aramco, Sanaat, and Gems Education.

These two countries have traditionally always been in the driver’s seat when discussing GCC region IPOs. With governments now coming around to the idea of raising capital through the privatization of state-owned assets, the upcoming listings could be exceptionally large compared to historical averages.

This makes it an interesting time to take a look back at some of the GCC region’s biggest IPOs and how they have performed since.

Performance of GCC’s largest IPOs

The five largest GCC IPOs (GULF) by deal size are National Commercial Bank, DP World, Saudi Telecom, Alinma Bank and Saudi Arabia Mining Co. The IPOs of these companies generated investments of $6 billion, $4.9 billion, $4.1 billion, $2.8 billion, and $2.5 billion respectively through their public offers.

Shares of these companies have returned 21%, -15%, 178%, and 81% and 188% since their respective public issues.

National Commercial Bank

National Commercial Bank, Saudi Arabia’s largest bank, raised nearly $6 billion in an IPO in 2014. Shares of the company were listed on the Saudi Arabian Tadawul Stock Exchange making it the largest IPO in the world after Alibaba in 2014 and the largest ever from the GCC region. The IPO was heavily oversubscribed as retail investors applied for 23 times more shares than the bank offered for sale.  GIB Capital and HSBC Saudi Arabia were lead managers and financial advisors for the public issue.

National Commercial Bank offered 500 million shares through the IPO, nearly 25% of its capital. Investment in the NCB IPO was restricted to Saudi Arabian citizens only. The 15% retail tranche, available to Saudi citizens, consisted of 300 million shares, while 10% was allocated to the kingdom’s Public Pension Agency. The stock was priced at 45 riyals ($12) and gained 13% on the first day of trade.

National Commercial Bank trades with the stock ticker 1180.SR on the Tadawul stock exchange. Shares of the company gained 13% within five days of trading after its initial listing, but dropped 6% over the next 12 months. NCB has a market cap of $28 billion, and the company’s stock has gained 21% since its public listing on the Tadawul Stock Exchange in November 2014. YTD in 2017, shares of NCB are up 25%.

At a price-to-book ratio of 2.0x, NCB trades at a discount to Saudi Arabia’s broader banking sector.

DP World

Dubai-based DP World, the fourth largest port operator globally, raised $5 billion in an IPO in 2007. DP World has operations around the world, but its biggest facility remains the port of Jebel Ali, in Dubai, one of the world’s top 10 container ports.

The company was the first to list exclusively on the Dubai International Financial Exchange. The IPO was 15 times oversubscribed as investors offered $80 billion for the shares on offer. As a result, during the final allocation DP World issued 498 million extra shares on the back of high demand. The company issued 3.8 billion shares in total, representing 23% of the company’s capital. Shares of the company were priced at $1.30, which fell in the higher band of the $1-$1.30 range announced by the company. Following the initial public offering, DP World was valued at $21.6 billion. Currently, the firm has a market cap of $19.3 billion.

DP World trades on the Dubai and Frankfurt stock exchanges with tickers DPW.DU and 3DW.F Shares of the company were delisted from the London Stock Exchange in 2015.DP World’s stock price has declined 16% since its public listing in April 2007. YTD, shares of DP World are up 30%.

Saudi Telecom

Saudi Telecom, the largest telecom company in Saudi Arabia, sold 30% of its equity in an IPO in 2002 raising nearly $4.1 billion. The public offering was heavily oversubscribed with investor applications worth nearly $10 billion, 2.5 times the number of shares offered. The company sold 90 million shares at 170 riyals, of which 60 million were reserved for Saudi citizens, with the remainder being allocated to two public pension funds.

Saudi Telecom trades on the Tadawul stock exchange with the ticker 7010.SR. Shares of the company have nearly doubled since its public listing in December 2002. YTD, shares of Saudi Telecom have declined 0.8% and trade at a PE ratio of 15.7x. Sell-side analysts are bullish on Saudi Telecom and have assigned 2 buy ratings, 1 sell ratings and 14 hold ratings.

Alinma Bank

Saudi Arabia-based Alinma Bank’s shares were issued to the public in 2007 after several delays. The bank’s IPO raised proceeds of $2.8 billion (10.6 billion riyals) from 5.4 million subscribers. The company offered 70% of its capital through 1.05 billion shares at an offer price of 10 riyals each. The issue was oversubscribed as investors offered $4.9 billion (18.3 billion riyals) 74% more than the value of shares on offer.

As with other Saudi Arabian IPOs, the offer was only open to Saudi nationals for which 70% of the shares were reserved. The remaining 30% were shared equally between The Public Investment Fund and two state pension funds — the General Organisation for Social Insurance (GOSI) and the Public Pension Agency.

Alinma Bank, formed in 2006 was yet to formally begin business activities when its IPO was announced. The bank began operations in 2008 with 15 branches, and today operates 77 branches across the country.

Alinma Bank trades on the Tadawul stock exchange with ticker 1150.SR. Shares of the company have gained 81% in value since its public listing in July 2007. YTD, shares of Alinma Bank have rallied 18.4% and trade at a price-to-book ratio of 1.4x. Sell-side analysts are bullish on Alinma Bank and have assigned 3 buy ratings, 4 sell ratings and 6 hold ratings.

Saudi Arabian Mining Co

Saudi Arabian Mining Co, commonly known as Ma’aden, raised nearly $2.5 billion (9.3 billion riyals) in an IPO in July 2008. Shares of the company were listed on the Saudi Arabian Tadawul Stock Exchange at 20 riyals per share. Following the IPO, the firm was valued at $4.9 billion and currently its value has increased 400% to $16.4 billion.

The IPO was oversubscribed as retail investors applied for 2 times more shares than the bank offered for sale. JPMorgan was the sole book runner while Samba Financial Capital was the lead manager for the public issue.

Saudi Arabian Mining Co offered 462.5 million shares through the IPO, nearly 50% of its capital. The stock was priced at 20 riyals and gained 5% on the first day of trading.

Proceeds from the IPO were used to cover costs related to the company’s projects, namely a 740,000 tonne aluminum smelter with Rio Tinto and a 3 million tonnes phosphate and by-products plant with Saudi Basic Industries Corporation.

Saudi Arabian Mining Co trades with the stock ticker 1211.SR on the Tadawul stock exchange. The company’s stock has gained 188% since its IPO on the Tadawul Stock Exchange in July 2008 but dropped 18% within a year of listing. YTD, shares of Ma’aden are up 33%.

At a price to earnings ratio of 190x, Saudi Arabian Mining shares trade at a premium to Saudi Arabian stock markets. Sell-side analysts have assigned 2 buy ratings, 6 sell ratings and 5 hold ratings to shares of the company.

Going forward, IPO activities will continue to gain momentum in the region, despite proliferating geopolitical uncertainties and subdued oil prices. However, investors will keep a close watch on the length and breadth of economic diversification in the region. As a long term economic objective to reduce reliance on energy exports, countries across GCC are spearheading ambitious diversification plans. These ambitious plans are underpinned by increased investment into infrastructure, logistics, tourism, technology, and human resource development. Subdued oil prices will continue to be a drag on the economy, but if the non-oil component can significantly offset this impact, investor confidence should further pick up.

 

Vietnam’s Biggest IPO Ever Just Debuted; This Is What You Need To Know

Vincom Retail

On November 6, Vietnam’s (VNM) largest IPO, Vincom Retail listed its shares on the Ho Chin Minh Stock Exchange under the ticker VRE. The stock received a lukewarm response on debut as trading remained light with merely 800 shares exchanging hands, and the stock closing 0.1% below its issue price.The listing is one of the largest IPOs ever on the Ho Chin Minh Stock Exchange

The mall operator offered 1.9 billion shares at a price 40,600 Vietnamese dong per share, at the top end of the IPO’s pricing range of 37,000 dong to 40,600 dong per share. The share sale raised $706 million, in what is slated to be Vietnam’s biggest equity offering till date. The Warburg Pincus-owned fund WP Investments III, Credit Suisse and other individual shareholders sold their shares through the IPO. Vingroup , the largest shareholder in Vincom Retail, did not sell any shares.

Foreign investors, including the Singapore sovereign wealth fund GIC, acquired 415 million shares equivalent to 21.8% of the shares offered in the IPO. Post the public issue, Vingroup will remain Vincom’s biggest shareholder with 36% stake.

The stock, however, listed slightly lower than its issue price at 40,550 dong per share, valuing the company at $3.4 billion. In the following five days of trade (as of November 15), shares of the company have gained nearly 10% from their listed price of VND 40,550. The company’s market value has subsequently increased to $3.7 billion.

Despite the lackluster debut, analysts opine that the success of this IPO will pave the way for other Vietnamese firms to seek listings and the government to pursue its privatization targets.

“Foreign investors are clearly showing strong interest in the market in Vietnam,” said Nguyen Thanh Lam at Maybank Kim Eng Securities.

Is the company lucrative?

Vincom Retail, established in 2013 started out with three malls in Vietnam. Currently, the company operates and owns 41 malls across 22 cities throughout the country with a gross retail floor area exceeding 1.1 million sq. meters. They now account for 60% of retail space in Hanoi and Ho Chi Minh City, according to research by Colliers International. The company plans to expand to 200 malls by the year 2021.

In 2016, the company reported revenues of $277 million (6.3 trillion dong) and net profits of $105 million (2.4 trillion dong). The company’s revenues grew at a CAGR of 81% between 2014 to 2016 as per reports by Vietnamese research firm Saigon Securities.

However, in 2017, the company forecasts revenues to decline 28% to $202 million (4.6 trillion dong) and net profits to depreciate 13% to $92 million (2.1 trillion dong). The company attributes this decline to the renewal of leases and ongoing construction of several malls. For 2018, Vincom Retail targets revenue growth of 75% and profit growth of 55%.

Bank Merger In Malaysia To Create Second Largest Islamic Lender; Five Other Banks To Watch

Acquisition of Asian Finance Bank to create second largest Malaysian bank

Malaysian lender Malaysia Building Society Berhad (1171.KL) could soon become a full-fledged bank. The lender recently laid out plans to acquire Asian Financial Bank (AFB) in a deal that would result in the merged entity becoming Malaysia’s second largest Islamic bank by assets. After the merger, Malaysia Building Society would have an asset base of $10.5 billion (44 billion ringgit) and operate 46 branches.

Malaysia Building society will buy the stake held by foreign shareholders – Qatar Islamic Bank, Financial Assets Bahrain, RUSD Investment Bank and Tadhamon International Islamic Bank – for $153 million (645 million ringgit). The company recently stated that it would pay $94 million (397 million ringgit) in cash and the remaining $59 million through the issuance of 225.5 million shares at 1.10 ringgit per share. The proposed merger will be completed by the first quarter of 2018.

In a note to investors, officials from Malaysia Building Society Berhad said, “The merged entity is expected to leverage on the strength of MBSB’s business and the banking license held by AFB is anticipated to provide a unique opportunity for the merged entity to emerge as a full-fledged Islamic banking franchise in Malaysia.” In the last few years, the company has been trying hard to get a banking license that would give it access to cheaper sources of funding. Moody’s said this merger would be “credit positive” for Malaysia Building Society and would lower its funding costs, thereby widening margins. Further, it would also broaden its revenue streams as the merger would enable the company to offer a wider range of products and services through Asian Finance Bank’s banking license. However, this merger would intensify competition in the Malaysian banking sector.

ETFs offering exposure to Malaysian banks

Foreign investors seeking exposure in Malaysia’s banking sector could invest in country focused ETFs that offer diversification through investment in a single US security.

The most popular ETF for U.S. investors is the iShares MSCI Malaysia ETF (EWM). The iShares MSCI Malaysia ETF (EWM) invests in 43 of the most liquid companies in Malaysia.

With assets under management of $448 million, the EWM ETF offers concentrated exposure to Malaysian companies. Financials is the top sector with 31% of assets, followed by utilities, industrials and telecommunication services with weightings of 14.8%, 14.5%, and 9.9% respectively. The ETF’s exposure to the financials sector has remained in the 30% to 32% range in the last five years. EWM’s top five holdings include 3 large banks – Public Bank, Malayan Bank, and CIMB Group Holdings. The fund is up 5.7% over the last one-year period, and year-to-date in 2017 it has gained 14.6%.

Largest banks in Malaysia

Year-to-date, the MSCI Malaysia Index has returned 5.9% while the Malaysian benchmark FTSE Bursa Malaysia KLCI Index has appreciated 6.2%. In comparison, the MSCI Malaysia Financials Index has soared 10.8%, outperforming broad based Malaysian stock market indices.

The largest Malaysian banks by assets are Malayan Bank, CIMB Group Holdings, Public Bank, RHB Bank and Hong Leong Financial. In 2016, these banks held assets worth $164 billion, $108 billion, $84.7 billion, $52.7 billion and $50.9 billion respectively.

Maybank

Malayan Banking Berhad, commonly known as Maybank is Malaysia’s largest bank by market cap as well as assets.

It is also among the largest banks in Southeast Asia with assets of $164 billion in 2016. The company has a current market cap of $23.5 billion. Maybank’s Islamic banking arm, Maybank Islamic, is currently ranked as the top Islamic bank in Asia Pacific and fifth in the world in terms of assets.

The company has a widespread international network spanning across all ASEAN countries. The bank currently has 2,400 branches in nearly 20 countries of the world and employs 45,000 employees.

In 2016, Maybank generated revenues of $7.6 billion and net interest margins of 1.9%.

Maybank‘s shares trade on the Kuala Lumpur Stock Exchange, Bursa Malaysia with ticker 1155.KL and on US OTC Markets with ticker MLYBY. The bank’s Kuala Lumpur listed shares have surged 20.7% in 2017.

CIMB

CIMB Group Holdings is Malaysia’s second-largest bank by assets and third largest by market capitalization. The company has a current market cap of $13.5 billion. The company is one of the largest Islamic banks in the world and the largest Asia Pacific (ex-Japan) based investment bank. CIMB also has a wide presence in retail banking with 1,080 branches across the Asia Pacific region.

Currently, the group’s businesses are spread across 18 countries across the globe, primarily in the ASEAN region as well as global financial centers like New York, London and Hong Kong. The bank’s geographical reach is aided by strategic partnerships in various countries. Its largest partners include Principal Financial Group, Bank of Tokyo-Mitsubishi UFJ, Standard Bank and Daewoo Securities.

In 2016, CIMB group generated revenues of $6 billion and net interest margins of 2.5%, highest among its peers.

CIMB’s shares trade on Bursa Malaysia with the ticker 1023.KL and on US OTC Markets with the ticker CIMDF. The bank’s Kuala Lumpur listed shares have surged 40.8% in 2017 so far, and have outperformed its banking peers as well as the Malaysian benchmark KLCI Index.

Public Bank Berhad

Public Bank Berhad is Malaysia’s third-largest bank by assets and the second largest by market cap. The bank offers financial services across the Asia Pacific region. The company has a current market cap of $18.8 billion.

Public Bank is more focused on its retail banking business even though it offers a complete suite of services ranging from personal banking, commercial banking, Islamic banking, investment banking, share broking, trustee services, nominee services, sale and management of unit trust funds, and general insurance products.

In 2016, Public Bank Berhad generated revenues of $4.62 billion and net interest margins of 2.0%.

Public Bank’s shares trade on the Bursa Malaysia with ticker 1295.KL. The bank’s shares have surged 6.8% in 2017 so far, and have underperformed its banking peers.

RHB Bank Berhad

RHB Bank Berhad is Malaysia’s fourth-largest bank by assets and the fifth largest by market cap. RHB Bank was incorporated in 1994 as DCB Holdings Berhad. The company, a subsidiary of RHB Capital (1066.KL), has been formed by three mergers with Kwong Yik Bank Berhad, Sime Bank Berhad and Bank Utama (Malaysia) Berhad in 1997, 1999 and 2003.

Currently, the bank has a network spanning 8 countries across Asia including Brunei, Cambodia, Indonesia, Hong Kong, Malaysia, Singapore, Thailand and Vietnam.

In 2016, RHB generated revenues of $ 2.6 billion and net interest margins of 1.7%.

RHB Bank’s shares trade on the Bursa Malaysia with ticker RHBC.KL. The bank’s shares have surged 4.9% in 2017 so far.

Hong Leong Bank

Hong Leong Bank, part of Hong Leong Group is the fifth-largest Malaysian bank by assets, and the fourth largest in terms of market cap. The company has a current market cap of $7.8 billion.

Based in Malaysia, Hong Leong Bank has a presence in Singapore, Hong Kong, Vietnam, Cambodia and China.

In 2016, Hong Leong generated revenues of $1.8 billion and net interest margins of 1.8%.

RHB Bank’s shares trade on the Bursa Malaysia with ticker 5819.KL. The bank’s shares have surged 21.8% in 2017 so far.

Valuations

The MSCI Malaysia Financials index is currently trading at a PE of 12.8x and price to book ratio of 1.4x. In comparison, the MSCI Malaysia Index trades at 16.5 times its past 12 months earnings and a price to book ratio of 1.7x.

Investors see valuations of Malaysia bank stocks as lucrative.

Alliance Bank Berhad, AMMB Holdings, RHB Bank, Hong Leong Financial and Affin Holdings are currently trading at inexpensive valuations compared to their peers. They have price-to-book multiples of 0.6x, 0.8x, 0.9x, 1.1x and 1.1x respectively.

Meanwhile, Public Bank, Hong Leong Bank, Malayan Bank, and CIMB Holdings are currently expensive with price-to-book multiples of 2.2x, 1.4x and 1.3x respectively.

Japan Stock Markets Rise To 25-Year Highs; These 3 Export-Driven Stocks Could Lead The Next Surge

Japanese stock markets are booming

The Nikkei 25 Index has surged to its highest levels last week since 1992 on strong earnings reports and Prime Minister Shinzo Abe’s re-election victory. In 2017 so far, the Nikkei 225 index is up 19.5% while the MSCI Japan index has gained 18.4%. Experts attribute this outperformance to significant improvements in the Japanese economy driven by Prime Minister Shinzo Abe’s policies as well as rapid growth in Asia.

Japan brokerage firm Okasan Securities expects the Nikkei index to surge to the 25,000 level by March 2019, while Nikko Asset Management forecasts 30,000 in the next two years.

The Nikkei 225 Index is up 15% over the last three months and 34% in the past one year. However, it is still 70% lower than its all-time high of 38,915 in 1989.

Furthermore, the MSCI Japan Index trades at a price to earnings ratio of 19.5, significantly lower than historical averages, thereby making Japanese stocks look inexpensive. In comparison, US Stock markets trade at an average PE of 23x.

Gluskin Sheff’s chief economist and strategist David Rosenberg is also bullish on Japan, given its inexpensive valuations. In a CNBC interview last week, he stated, “What’s interesting in Japan is that the small cap stocks are starting to outperform large cap stocks. So, what that’s telling me is that this is more than just buy Japan because of the weak yen. This is actually a much more fundamental story that people are missing.” He continued, “Japan is probably the most under-owned stock market on the planet from a global portfolio manager perspective.”

ETFs with exposure to Japan

Foreign investors seeking exposure in Japan could invest in country-focused ETFs that offer diversification through investment in a single US security. Alternatively, investors wanting direct exposure could consider ADRs of Japanese companies.

The most popular ETF for U.S. investors is the iShares MSCI Japan ETF (EWJ). The iShares MSCI Japan ETF (EWJ) seeks to track the returns of the MSCI Japan Index.

With assets under management of $18.4 billion, the EWJ ETF offers concentrated exposure to Japanese companies. Industrials are the top sector with 21% of assets, followed by consumer discretionary, information technology and financials. The funds top five holdings constitute ~10% of its assets, making it fairly diversified. The fund is up 20.1% over the last one-year period, and year to date in 2017 it has gained 21.8%.

Stocks to track

Renewed confidence in the American economy, Japan’s largest export partner has driven stocks of cyclical and export-based companies.

Large-cap Japanese stocks such as Tokyo Electron, Recruit Holdings and Sony Corp have gained the most in 2017. Shares of these companies have soared 112%, 78% and 66% year to date, outperforming key benchmark indices.

Tokyo Electron (TOELY) has been the best performer after the semiconductor company beat profit estimates and raised earnings outlook. Sony and Recruit Holdings have also posted stellar earnings.

Tokyo Electron

Tokyo Electron (8035.JP) is a leading manufacturer of integrated circuits and flat panel display equipment. The company has a weighting of 3.7% in Nikkei 225 Index, fifth highest. Currently, the company has a market cap of $32 billion.

Recruit Holdings

Japan based Recruit Holdings (RCRRF)(6098.JP) is a temporary staffing agency for temporary workers. The company listed in 2014 in Japan, now has a market cap of $41 billion. Recruit Holdings has a weighting of 1.3% in the Nikkei 225 Index.

Sony Corp

Sony Corporation (SNE) (SNEJF) is a Japanese multinational conglomerate and a leading manufacturer of electronic products for consumers and corporate users. Sony is ranked 105th on the 2017 list of Fortune Global 500 companies.

The company carries a weight of 0.9% in the Nikkei 225 Index and has a market cap of $59 billion.

16 Nigerian Companies To Watch After MSCI Rules Against Dropping Nigeria From Frontier Markets

 

MSCI retains Nigeria’s Frontier Market Status

MSCI has decided to retain Nigeria in its Frontier Market Indices, ruling out the possibility of reclassification to ‘standalone’ status. In an announcement last week, MSCI announced that it would remove Nigeria indices from its review list and no longer apply special treatment to the country’s indices.

On April 29, 2016 the MSCI had put MSCI Nigeria Indices under review for a potential reclassification to “standalone status” due to foreign exchange market challenges that have hampered repatriation of capital by institutional investors.

Morgan Stanley analysts stated that restrictions on foreign currency trading that were imposed in 2015 led to a decline in market accessibility for foreign investors resulting in the MSCI placing Nigeria on a review list for potential reclassification to standalone status in September 2016. However, recently the Central Bank of Nigeria’s constant supply of foreign exchange to markets has improved liquidity.

MSCI also increased the weights of Nigeria stocks to 7.9% from 6.5% in its frontier market index. The MSCI Frontier Market Index comprises of 16 companies listed on the Nigeria Stock Exchange, including Nigerian Breweries, Guaranty Trust Bank, Zenith Bank, Nestle Nigeria, Dangote Cement, Forte Oil, Seplat Petroleum Development Company and FBN Holdings.

Why it matters

Countries and stocks that get included in the MSCI indices usually attract fund flows. There are passive funds that track these inclusions to keep tabs on overall market sentiment. Index weighting and composition is an important metric for investors as fund managers and foreign investors try to mimic the index when allocating their funds and building their portfolios. Countries and stocks that are included in the MSCI Index generally see higher allocations from foreign investors. The addition of stocks to major indices also increase overall trading volumes and thereby the underlying returns. Conversely, removal can lead to outflows from the country’s stock’s markets.

ETFs offering exposure to Nigeria

Foreign investors seeking exposure to Nigeria can invest in country-focused ETFs that offer diversification through investment in a single US security. Alternatively, investors wanting direct exposure could consider ADRs of Nigerian companies.

The most popular ETF for U.S. investors is the Global X MSCI Nigeria ETF (NGE). The Global X MSCI Nigeria ETF (NGE) invests in 20 of the most liquid companies in Nigeria.

With assets under management of $63.5 million, the NGE ETF offers concentrated exposure to Nigerian companies. Financials are the top sector accounting for 51% of assets, followed by consumer staples, materials and energy. The funds top five holdings constitute ~50% of its assets, making it fairly concentrated. The fund is up 13.7% over the last one-year period, and year to date in 2017 it has gained 23.7%.

Stocks to buy

Year to date, the MSCI Nigeria Index has surged 47% while the Nigerian benchmark Nigerian Stock Exchange index has gained 37%. Comparatively, the MSCI Nigeria Index has returned 51%.

The largest Nigerian stocks by market capitalization are Dangote Cement, Guaranty Trust Bank, Nigerian Breweries, Nestle Nigeria, Zenith Bank, Stanbic Ibtc Holdings, Ecobank Transnational, United Bank For Africa, Access Bank, Lafarge Africa, Fbn Holdings , Guinness Nigeria , Dangote Sugar Refinery , Unilever Nigeria , International Breweries and Union Bank of Nigeria.

1.    Dangote Cement

Dangote Cement, a subsidiary of Dangote Group, is the largest company trading on the Nigerian Stock Exchange with a market cap of $10.8 billion. The company is engaged in the manufacture, preparation, import, packaging, and distribution of cement and related products in 13 countries across Africa, and has three plants in Nigeria.

It is Nigeria’s biggest cement producer with annual production of 23.6 million tonnes in 2016 and revenues of $1.7 billion.

The company trades on the Nigerian stock exchange with ticker DANGCEM.NL. Year to date, shares of the company have returned 39.7%.

2.    Guaranty Trust Bank

GT Bank, also called Guaranty Trust Bank, is Nigeria’s largest bank by assets and market capitalization with the latter standing at $3.4 billion. GT Bank listed its shares on the London and German Bourses in 2007, and raised $750 million.

In 2016, GTBank generated revenues of $1.7 billion and net interest margins of 9.7%. The bank reported return on assets of 4.7% and return on equity of 29.1% last year.

GTBank‘s shares trade on the Nigerian, Frankfurt, Stuttgart and London Stock Exchanges with tickers GUARANTY.NL37G1.F37G1.SG, and GRTB.IL. The bank’s Nigeria listed shares have surged 107% in 2017 thus far.

3.    Nigerian Breweries

Nigerian Breweries is the largest brewer in Nigeria serving parts of West Africa and Nigeria. The company has eleven operational breweries across Nigeria and malting plants in Aba and Kaduna and 26 sales depots. It also focuses on ancillary business, which includes manufacturing cans, labels, cartons and bottles. Additionally, it runs an export business.

The company’s products are distributed in over thirteen countries, across the United Kingdom, South Africa, Middle-East, West Africa and the United States of America. In 2016, Nigerian Breweries generated revenues of $1.1 billion.

The company trades on the Nigerian Stock Exchange with ticker NB.NL and has a market capitalization of $3.2 billion. Year to date, shares of the company have returned 4.2%.

4.    Nestle Nigeria

Nestle Nigeria is a part of global FMCG company Nestle Group. The company began operations in Nigeria in 1961 and is today a leading food manufacturing and marketing company in the country. Nestlé Nigeria is part of Nestlé’s Central and Africa Region (CWAR), headquartered in Accra (Ghana)

In 2016, the company generated revenues of $738 million.

The company trades on the Nigerian stock exchange with ticker NESTLE.NL and has a market capitalization of $2.8 billion. Year to date, shares of the company have returned 60.4%.

5.    Zenith Bank

Zenith Bank is one of the banks in Nigeria with assets of nearly $13 billion in 2016. The bank was established in 1990 and currently had nearly 500 branches across the country as well as in UK, UAE, Ghana, Sierra Leone and the Gambia. The bank also has offices in South Africa and China. In 2016, Zenith Bank reported revenues of $2.1 billion and held assets of $13.2 billion.

In 2013, Zenith Bank raised $850 million from an IPO on the London Stock Exchange. The company trades on the Lagos and London stock exchanges with ticker ZENITHBA.NL and ZENB.LI. Zenith Bank has a market capitalization of $2.3 billion on the Nigerian stock exchange and has returned 9% in 2017 so far. 

6.    Stanbic IBTC Holdings

Stanbic IBTC Holdings, is an end to end financial services provider with businesses ranging from banking, stock brokerage, investment advisory, pension and trustees. The bank is a member of South Africa based financial services giant Standard Bank Group.

In 2016, the bank reported revenues of $607 million and assets of $2.9 billion.

The company trades on the Nigerian stock exchange with ticker STANBIC.NL and has a market capitalisation of $1.2 billion. Year to date, shares of the company have returned 155%.

7.    Ecobank

Ecobank is a pana-African bank with operations in nearly 36 countries across the continent. It the the largest independent regional bank in Western and Central Africa, and operates through subsidiaries in Eastern and Southern Africa. The bank also has a presence in Angola, China, Dubai, France, South Africa, and the United Kingdom.

The bank reported revenues of $2.5 billion and assets of $20.5 billion in 2016.

The company trades on the Nigerian stock exchange with ticker ETI.NL and has a market capitalization of $1.1 billion. Year to date, shares of the company have returned 87%.

8.    United Bank for Africa

United Bank for Africa is one of Africa’s more resilient banks with operations across 19 African nations along with offices in London, Paris and New York. UBA has more than eight million customers and 700 business offices globally.

In 2016, the bank reported revenues of $1.4 billion and assets of $9.7 billion.

The company trades on the Nigerian stock exchange with ticker UBA.NL and has a market capitalization of $941 million. Year to date, shares of the company have returned 157%.

9.    Access Bank

Access Bank, is a commercial bank owned by Nigeria based Access Bank Group. The company is among the five largest Nigerian banks in terms of assets, loans, deposits and branch network.

As of December 2016, the bank had an asset base of $9.6 billion and revenues of $1.5 billion.

The company trades on the Nigierian stock exchange with ticker ACCESS.NL and has a market capitalization of $811 million. Year to date, shares of the company have returned 101%.

10. Lafarge Africa

Lafarge Africa is a subsidiary of Lafarge Holcim serving Nigerian and South Africa with cement solutions to meet building and construction requirements. Lafarge Africa has a current installed cement capacity of 12 million metrics tonnes (MMT), which is expected to grow to 18MMT by 2020.

In 2016, the company generated revenues of $879 million.

The company trades on the Nigerian stock exchange with ticker WAPCO.NL and has a market cap of $785 million. Year to date, shares of the company have returned 1.3%.

11. FBN Holdings

FBN holdings provides financial services in Nigeria through its various subsidiaries. The company is engaged in commercial banking, investment banking, insurance services, and merchant banking among other banking services.

In 2016, the company reported revenues of $1.9 billion and assets of $13.2 billion.

The company trades on the Nigerian stock exchange with ticker GUINNESS.NL and has a market capitalization of $703 million. Year to date, shares of the company have returned 144%.

12. Guinness Nigeria

Guinness Nigeria is a subsidiary of UK based brewer Diageo. The company was established in 1962 with its first brewery in Ikeja.

In 2016, the company reported revenues of $401 million.

The company trades on the Nigerian stock exchange with ticker FBNH.NL and has a market capitalization of $608 million. Year to date, shares of the company have returned 23%.

13. Dangote Sugar Refinery

Dangote Sugar is a subsidiary of Nigerian conglomerate Dangote Group. It’s the currently the largest sugar refining company in sub-Saharan Africa, competing with Bua Refinery Ltd. and Golden Sugar. The company generated revenues of $680 million in 2016.

Dangote Sugar trades on the Nigerian stock exchange with ticker DANGSUGA.NL and has a market capitalization of $513 million. Year to date, shares of the company have returned 189%.

14. Unilever Nigeria

Unilever Nigeria is a subsidiary of FMCG giant Unilever and is engaged in manufacture and market of food and home care products in Nigeria. The Company has manufacturing sites in Oregun, Lagos State and Agbara, Ogun State.

In 2016, the company reported revenues of $276 million.

The company trades on the Nigerian stock exchange with ticker UNILEVER.NL and has a market capitalization of $475 million. Year to date, shares of the company have returned -8.2%.

15. International Breweries

International Breweries is a Nigeria based brewery currently operated by SABMiller. The company listed on the Nigerian Stock Exchange in 1994.

In 2016, International Breweries reported revenues of $114 million.

The company trades on the Nigerian stock exchange with ticker INTBREW.NL and has a market capitalization of $429 million. Year to date, shares of the company have returned 114%.

16. Union Bank Nigeria

Union Bank is a Nigeria-based commercial bank serving retail as well as corporate clients. The bank has a vast network of branches across Nigeria as well as in Cotonou, Benin and London. It also maintains a representative office in Johannesburg.

As of December 2016, the bank had an asset base of $3.5 billion and revenues of $443 million.

The company trades on the Nigerian stock exchange with ticker UBN.NL and has a market capitalization of $363 million. Year to date, shares of the company have returned 64%.

5 Under-The-Radar Emerging Market Tech Stocks Delivering Big Gains

Emerging market tech stocks are raging

Technology stocks have been driving emerging markets indices north. In 2017 to date, the MSCI Emerging Markets index is up 25% — the largest gains in the past six years. On average, tech sector stocks in the emerging markets index have surged 75% in the year so far, outperforming the index three-fold.

The biggest five emerging market companies in the index are tech firms Alibaba (BABA), Tencent (0700.HK), Samsung (005930.KS), Naspers (NPN.JO) and Taiwan Semiconductor (2330.TW). They comprise almost 19% of the MSCI Emerging Markets Index (EEM) in terms of market capitalization.

UBS Strategist Bhanu Baweja states that the IT sector contributed to 47% of the rise in the MSCI Index so far. Of the 830 stocks constituting the MSCI EM Index, 10 stocks have surged 41% year to date. “You don’t see that every year, I’m very certain we haven’t seen that ever,” he mentioned in a note to investors.

Gains in emerging markets have been primarily driven by large bellwether stocks like Samsung, Taiwan Semiconductor Manufacturing, Alibaba, Tencent Holdings and Naspers. In the year so far, shares of these companies have rallied 56%, 47%, 108%, 94% and 73%, and have outperformed the popular FAANG stocks.

Emerging market tech equities are expected to gain further as smartphone demand is rising in these countries.

The tech sector is gaining importance in equity indices as these companies dominate stock trading. In 1995, the tech sector constituted merely 2% of the MSCI Emerging Markets Index, but now have risen to 27%. In the United States, tech stocks make up 24% of the S&P 500 Index (SPY).

John Vail, chief global strategist at Nikko Asset Management Americas who is bullish on Asian tech stocks believes stellar earnings are driving gains in the stocks of these companies. Further, Internet penetration growth in emerging markets is higher than developed markets.

Michael Lippert, portfolio manager of Baron Opportunity Fund, also has big investments in tech stocks and believes “data is the new oil.”

Ben Laidler, a global equity strategist at HSBC , said investing in emerging markets hasn’t changed all that much, even if the type of companies is different.

Chinese tech stocks form the largest chunk of the pie when it comes to emerging markets tech stocks. HSBC estimates China contributes nearly 71% of tech sector revenues in emerging markets, and has been key to growth of the tech sector in these markets.

However, some experts believe the rally in the tech sector is overbought, and a correction is pending. Rob Young, manager of the $65 million ICON Emerging Markets Fund is currently offloading his investments in tech stocks like Alibaba and Tencent. “These stocks are highly sensitive to earnings growth, and if there is any slight deceleration, the stocks get hammered,” he said.

Valuations

The MSCI Emerging Markets Tech index is currently trading at a PE of 21.2x while the MSCI US Tech stocks index trade at PEs of 25.2x. In comparison, the MSCI Emerging Markets Index trades at 15.8 times its past 12 months earnings.

Investors see valuations of tech stocks to be lucrative and see emerging markets stocks as a less expensive way to gain exposure to the high growth tech sector.

Stocks trading lower than their average price-to-earnings multiples or lower than the sector average price-to-earnings multiples attract investor attention because they’re considered cheap. The price-to-earnings multiple compares a stock’s price to its forward earnings per share. If a company trades at a high PE, it means investors are anticipating higher growth in the future.

Vipshop (VIPS), YY Inc (YY), Autohome (ATHM), Naver Corp and Baidu (BIDU) are currently trading at inexpensive valuations compared to their peers. They have one-year forward price-to-earnings multiples of 15.2x, 18x, 30x, 33x, and 34.4x respectively.

Meanwhile,  58.com (WUBA), Kakao Corp and Weibo are currently expensive. They have PE multiples of 388x, 102x and 97x respectively.

Analyst recommendations

Analysts are bullish on the technology sector in emerging markets based on favorable demographics and a growing Internet population. Kristina Hooper, the global market strategist at Invesco, believes emerging-market tech stocks are cheaper compared to their US counterparts and offer higher growth potential.

The table above shows the ratings of some large-cap tech stocks in emerging markets. Analysts are most bullish on big names like Alibaba (BABA), Tencent Holdings, NCSoft, Naver Corp and JD.com.  Alibaba has received 47 buy ratings, and 3 hold ratings, while Tencent Holdings has received 44 buy ratings, and 2 hold ratings. Naver Corp has received 35 buy ratings, and 3 hold ratings. Comparatively, NCSoft and JD.com have received 35 and 33 buy ratings respectively. All these stocks have received no sell ratings.

3 Poland Stocks To Buy Before Its Upgrade From Emerging To Developed Next Year

Poland to be upgraded to developed market in 2018

FTSE Russell plans to upgrade Poland to Developed Market status by September 2018, making it the first Central and Eastern European country to be awarded Developed Market status. This will place Poland along with 24 developed nations ranked by FTSE, and stocks from the country would get included in the FTSE Developed All Cap Ex-US index. The largest investment banks and equity funds use FTSE Russell’s indices to mimic their portfolios.

Poland will constitute 0.38% of the FTSE Developed All Cap Ex-US, lower than its 1.6% composition of the FTSE Emerging All Cap index. As a consequence, JPMorgan expects outflows of $340 million from the country’s stock markets.

Marek Dietl, president of the Warsaw Stock Exchange (WSE) believes this development is a big step and will encourage economic development and capital flows in the country.

“The FTSE Russell upgrade of Poland to Developed Market status represents an acknowledgment of the progress of the Polish economy and capital markets and is a major step in their development”, he mentioned. “Poland has all the features of a developed market, including secure trading and post-trade services, as well as advanced infrastructure,” Mr Dietl continued. “The WSE uses a state-of-the-art trading system and its listed companies meet the highest standards of corporate governance and disclosure requirements. Furthermore, the dynamic development of the Polish economy represents an opportunity for international investors. Poland’s upgrade to Developed Market status is a challenge which we are ready to face.”

Why it matters

Countries that get included in MSCI indices usually attract fund flows. There are passive funds that track these inclusions to keep tabs on overall market sentiment. Index weighting and composition is an important metric for investors as fund managers and foreign investors try to mimic the index when allocating their funds and building their portfolios.  Countries that are included in the MSCI Index generally see higher allocation from foreign investors. The addition of stocks to major indices also increase their overall trading volumes and thereby their returns. Conversely, removal can lead to outflows from the country’s stock’s markets. In Poland’s case, experts currently expect outflows in the near-term as global portfolio managers will realign their portfolios after the upgrade.

ETFs offering exposure to Poland

Foreign investors seeking exposure in Poland could invest in country-focused ETFs that offer diversification through investment in a single US security. Alternatively, investors wanting direct exposure could consider ADRs of Polish companies.

The most popular ETFs for U.S. investors are the iShares MSCI Poland Capped ETF (EPOL) and the VanEck Vectors Poland ETF (PLND). The VanEck Vectors Poland ETF (PLND) invests 91% of its portfolio in Polish Equity while the iShares MSCI Poland Capped ETF provides 100% exposure to Poland.

With assets under management of $356 million, the EPOL ETF offers concentrated exposure to polish companies. Financials are the top sector with 43% of assets, followed by energy, consumer cyclicals, and utilities. The funds top ten holdings constitute ~60% of its assets. The fund is up 49% over the last one-year period, and year-to-date in 2017 it has gained 47%.

The PLND ETF invests in a portfolio of companies that generate at least 50% of revenues from Poland. Financials are the top sector with 39% of assets, followed by energy, consumer cyclicals, and utilities. With assets under management of only $21 million, this fund has been unable to garner significant interest from the investor community. However, the fund is up 53% over the last one-year period, and year to date in 2017 it has gained 50%.

Stocks to buy

Year-to-date, the MSCI Poland Index has surged 15.83% while the Polish benchmark WIG20 index has gained 29%.

The largest Polish stocks by market capitalisation are Polski Koncern Naftowy Orlen, Pko Bank Polski Sa, Powszechny Zaklad Ubezpiecze, Polskie Gornictwo Naftowe I, Bank Zachodni Wbk.

Currently, these stocks have market caps of $14.9 billion, $12.4 billion and $10.5 billion, $10.5 billion, and $9.7 billion respectively.

Year to date, shares of these companies have returned 20.5%, 7.7% and -12.8% respectively.

Polski Koncern Naftowy Orlen

PKN Orlen is a Poland based oil refiner and petrol retailer with largest operations across Poland, Czech Republic, Germany, and the Baltic States. Orlen is the largest fuel retailer in Poland with 2,000 outlets and has made significant investment abroad. The company has a majority stake in Czech based refiner Unipetrol. Orlen also owns ~85% of the only oil refinery in the Baltic States – ORLEN Lietuva – that it took over in 2006 from Yukos.

PKN Orlen, under a joint venture with the Netherlands firm Basell, also owns Poland’s largest plastics company. In 2005, PKN Orlen was involved in a proposed merger with Hungarian oil major MOL Group that would have resulted in the combined companies becoming the largest in Central Europe. However, the planned merger failed.

PKN Orlen is the largest Polish company by revenues with annual sales of $20.2 billion in 2016.

The company trades on the Polish, Berlin and Frankfurt stock exchanges with tickers PKN.WSE, PKY1.BE and PKY1.F. With a market value of over $14.9 billion the company is currently the most valuable company in Poland.

PKO Bank Polski SA

PKO Bank is Poland’s largest bank with assets of nearly $78 billion in 2016. PKO Bank is one of the best-recognised and most valuable brands in Poland. The bank’s primary area of expertise is retail banking. It services both retail and corporate clients. The bank also has a presence in Ukraine through its stake in Kredobank.

The Polish state government still holds a 51.2% stake in the bank through various state-owned companies, despite the bank going public on the Warsaw Stock Exchange in May 2011.In 2016, PKO Bank reported net interest income of nearly $2.1 billion and ranked 900 on the Forbes Global 2000 companies.

The company trades on the Polish, Berlin and Frankfurt stock exchanges with tickers PKO.WSE, P9O.BE and P9O.F.

Powszechny Zakład Ubezpieczeń

Powszechny Zakład Ubezpieczeń, or PZU Group is one of the largest financial institutions in Poland and is one of the biggest insurance providers and Eastern and Central Europe.

PZU Group offers the largest selection of insurance products in Poland in the areas of non-life insurance, personal and life insurance, investments funds and open pension fund. PZU provides comprehensive insurance coverage in all key sectors of private, public and economic activity. The PZU Group also manages an open pension fund, investment funds and savings programmes.

In 2016, the company generated revenues of $6.2 billion, gross written premiums of $2.9 billion and net profits of $436 million.

The company trades on the Polish, Berlin and Frankfurt stock exchanges with tickers PZU.WSE, 7PZ.BE and 7PZ.F.

This Insurer Just Became India’s Second-Largest IPO Ever: Here Are 4 Other Competitors To Buy

India’s second largest IPO

State-owned Indian re-insurer General Insurance Corporation of India Ltd’s (GICRE.NS) recently raised $1.8 billion in a public issue, making it the second-largest IPO in India’s history. The largest IPO in India remains state-owned Coal India Ltd’s $3.4 billion (Rs15,200 crore) share sale in 2010.The government will offload 12.2% stake in General Insurance Corporation of India Ltd through 100.8 million shares while the company will sell another 10.7 million shares to improve its capital base. The company will offer a total of 14.2% of its post-issue share capital, or 124.7 million shares. Citi, Axis Capital, Deutsche Bank, HSBC and Kotak Investment Banking are the book-runners for the offer.

GIC has fixed a price band of Rs 855-912 per share for the issue, valuing it at $11.75 billion to $12.3 billion (Rs75,000-80,000 crore). The IPO was subscribed 1.37 times by retail investors. The portion reserved for institutional investors was 2.25x subscribed.

Analysts are bullish on GIC in the long-term based upon the company’s solid fundamentals and fair valuations. At the upper price band of Rs 912 the stock is available at a P/E of 24.9x based on FY17 EPS of Rs 36.52. Indian brokerage firm Prabhudas Lilladher believes that the GIC’s price band of Rs885-912 per share implies a valuation of 25.7-27.4 times based on its March 2017 EPS of Rs 36.52 which it believes is a fair price.

In terms of gross premiums, GIC is the largest reinsurance provider in India, offering its products in key areas like fire (property), marine, motor, engineering, agriculture, aviation, health, liability, credit and financial liability, and life insurance. The company accounted for 60% of premiums earned by Indian insurers in FY2017 according to CRISIL.Between FY15-FY17, the company’s gross premium (GWP) grew at a CAGR of 48.6%. In FY 17, the company reported GWPs of $5.2 billion (Rs 337,407.91 million) and a combined ratio of 100.2%.

Insurance stocks to consider

Year-to-date, the MSCI Insurance Index has surged 16% while the MSCI India Index has gained 23%. The iShares MSCI India ETF (INDA) invests 22% of its portfolio in Indian Financial stocks. For 2017 year-to-date, this ETF has returned 29%. Comparatively, the MSCI India Financials Index has returned 30% during the same period.

The largest Insurance stocks in India by market capitalization are Bajaj Finserv, SBI Life Insurance, ICICI Prudential Life Insurance and ICICI Lombard General Insurance. Currently, these stocks have market caps of $12.9 billion, $10.4 billion, $8.7 billion and $5 billion respectively.

Year-to-date, shares of these companies have returned 74%, -6.3%, 29% and -0.2% respectively.

Bajaj Finserv

Bajaj Finserv, is an India-based financial services company engaged in lending, asset management, wealth management and insurance products. The company is also involved in wind power generation.

Bajaj Finserv operates through joint ventures and subsidiaries and has established a nationwide presence across more than 1,400 locations in India.

Currently, it provides life insurance and general insurance products through its joint venture Bajaj Allianz. In FY17, the company was the second largest private general insurer in terms of GWPs, and is among the top 5 private life insurance providers in the country.

In FY17, Bajaj Finserv reported revenues of $3.7 billion and gross written premiums of $951 million in its life insurance business and $1.2 billion in its general insurance business. The company’s general insurance segment reported a combined ratio of 96.8%.

Shares of Bajaj Finserv are listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchanges with tickers BAJAJFINSV.NSE and BAJAJFINSV.BO respectively. Year-to-date, shares of the company have returned 74%, outperforming the Indian benchmark index Nifty (NSEI). Comparatively, the Nifty Index has gained 26% in value in 2017 so far.

SBI Life insurance

SBI Life Insurance is a joint venture between India’s largest state-owned bank State Bank of India and French multinational bank BNP Paribas. SBI owns a 70.1% stake in SBI Life Insurance while BNP Paribas Cardiff owns 26% stake. Other investors Value Line Pte. Ltd. and MacRitchie Investments Pte. Ltd., hold a 1.95% stake each.

SBI Life Insurance is a leading private life insurance provider in India. The Company’s individual plans include unit-linked plans, child plans, retirement plans, protection plans and savings plans. Its group plans include Corporate Solutions, Group Loan Protection Products and Group Micro Insurance Plans.

In FY17, SBI Life Insurance reported revenues of $158 million and gross written premiums of $3.2 billion. The company added 1.28 million new policies during the financial year.

Shares of SBI Life Insurance are listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchanges with tickers SBILIFE.NS and SBILIFE.BO respectively. Year-to-date, shares of the company have returned -6.3%, underperforming its peers and the Indian benchmark index Nifty (NSEI). Comparatively, the Nifty Index has gained 26% in value in 2017 so far.

ICICI Prudential

ICICI Prudential Life Insurance provides life insurance in India. The company was formed in 2000 as a result of a joint venture between India-based ICICI Bank and UK-based financial services group Prudential PLC. ICICI Bank Ltd. and Prudential hold stakes of 68% and 32% respectively in the company. ICICI Prudential was among the first private sector insurance providers to receive approval from the Insurance Regulatory and Development Authority of India to operate in India. ICICI Prudential Life was the first private life insurer to attain assets under management of Rs 1 trillion and in-force sum assured of over Rs 3 trillion.

In FY17, ICICI Prudential Life Insurance reported revenues of $5.8 billion and gross written premiums of $3.3 billion.

ICICI Prudential Life was the first insurance company in India to be listed on NSE and BSE. The company’s shares have been listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchanges since 2016 with tickers ICICIPRULI.NS and ICICIPRULI.BO respectively. Year-to-date, shares of the company have returned 29%, outperforming its peers and the Indian benchmark index Nifty (NSEI). Comparatively, the Nifty Index has gained 26% in value in 2017 so far.

ICICI Lombard General Insurance Company

ICICI Lombard General Insurance Company Limited is one of the leading private sector general insurance companies in India. Formed in 2001, ICICI Lombard General Insurance Company is a joint-venture between India’s second largest bank, ICICI Bank, and the Canadian financial services company, Fairfax Financial Holdings Limited.  ICICI bank has a 64% stake, while Fairfax holds 35% of ICICI Lombard General Insurance. It is currently the largest private sector general insurance company in India with 249 branches spread across the country.

In FY16, ICICI Lombard reported gross written premiums of $14.9 billion and a combined ratio of 106.2%.

ICICI Lombard’s shares are listed on both the National Stock Exchange of India (NSE) and the Bombay Stock Exchanges since September 2017 with tickers ICICIGI.NS and ICICIGI.BO respectively. Since their listing, shares of the company have returned -0.2%.