Finance Sector: Buy or sell?
Summary
With lots of good and bad news flying around in the finance world, what should a smart investor do?Topics Covered
1. Our view
2. How to save money off this idea
Background
1. Our view
In today's FT we read that
- US big banks continue reeling
- the reputable AIG share fell , and
- China's ICBC bought a 20% stake in South Africa's prestigious Standard Bank
We do not think that any of this represents a buying opportunity. Our view has not changed.
Concerning AIG and big US banks: don't fall for the "buy on weakness" view. Our view is that The Economic Time™ remains bad/is worsening in America and Europe. Besides which, we have pointed out before that nobody with half a brain can claim to be able to measure the extent of the current sub-prime mess. What we do know is that the Fed and US Treasury are so concerned that they are alleviating the pain of the banks via lower rates and seeming bail-out packages. None of which is good in "free market" system.
We were surprised that reputable AIG's share got slammed. That further reinforces my reluctance to put any of our Theme Fund's money into any finance sector. After all, if a group as smart as AIG has been dabbling in high risk sub-prime investments, what have their less-classy colleagues been doing? What other messes are lurking in the wood work?
China's ICBC stake in Standard Bank is revealing. Ever the pragmatists, the Chinese want to learn how to run banks, and Standard is pretty well run, we guess. The flip-side is that the Chinese realise their own shortcomings concerning the management of their own banks, so they are buying stakes in other banks. At this stage, this pragmatism does not compel us to recommend buying Chinese banks either: their purchase of overseas banks reveals that they have a great deal to learn about running a bank commercially.
2. How to Save/Make Money Off This Idea
- Always consult your financial adviser first!
- Avoid anything in the finance sector - be this banks or insurers
