Wednesday, January 16, 2008

Why Sovereigns Are Buying Our Financials

As the debate now "roars" about whether or not US equities are headed for a general bear market, we all know that the financial sector has been there for some time now. Indeed, the Financial Sector SPDR (XLF) ETF is down some 25.7% from January 1, 2007 through January 16, 2008.

This week's news once again features prominent and sizable liquidity facilities provided to our US banking institutions by foreign sovereign funds. As shown below, from the foreigner's currency adjusted perspective, these securities are an even better "bargain", with the XLF down more than 30% when stated in Euro and Yuan, respectively.

If you believe foreign central banks will soon start lowering their lending rates along with ours, and that the US is closer to a price floor than our relatively high flying foreign market counterparts, it is easy to see the attraction. This is especially true with choice preferred stock dividend rates approaching 10% on the bargaining table.

Who would have guessed just a few short years ago that our securities would so soon become the global "value-play"? Billions of US investment dollars are reported to have moved into overseas equities during the last several years. I wonder if the ultimate "put" for the US markets will end up being the reversal of that flow?

1 comment:

Jeff Pietsch CFA, Esq said...

A related article worth a read: