Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

Taiwan Financials / Thematic (Sector/Industry)

Too much excitement in investment decisions can work both ways. There can be a "Eureka" moment when everything comes together. There can be though emotionally-driven decisions that frankly miss the wood from the trees: one latches on to a concept at the wrong price.Investors in Taiwanese banks have been amply rewarded versus other EM banks over the years. Insights here have pinpointed the opportunity: <a href="https://www.smartkarma.com/insights/e-sun-fhc-here-comes-the-summer" target="_blank" data-smartkarma-citation="insights:20641" rel="noopener">E.Sun FHC: Here Comes the Summer</a> , <a href="https://www.smartkarma.com/insights/taichung-commercial-bank-further-to-go" target="_blank" data-smartkarma-citation="insights:30302" rel="noopener">Taichung Commercial Bank: Further To Go</a> , <a href="https://www.smartkarma.com/insights/taichung-commercial-bank-credit-contracting-as-impaired-loans-rise" target="_blank" data-smartkarma-citation="insights:37627" rel="noopener">Taichung Commercial Bank: Credit Contracting as Impaired Loans Rise</a> or <a href="https://www.smartkarma.com/insights/ctbc-softly-this-hand-crafted-news-reaches-the-fresh-leaves-liu-qiyu" target="_blank" data-smartkarma-citation="insights:21638" rel="noopener">CTBC: "Softly This Hand-Crafted News Reaches the Fresh Leaves" - Liu Qiyu</a> . No "Eureka" moment but rather an appreciation of robust fundamental progression at the right price.There is nothing especially exciting about Taiwanese banks. They are generally pretty conservative risk-averse entities located in a country with a solid fiscal and monetary framework, a democratic structure, where technology opportunities abound. But valuations have become somewhat stretched on a relative basis, by regional and global measures. There is a "COVID" premium or what we call a "sober-safety" premium too. For these valuations to pay off going forward, a great deal must go right. The problem is that Taiwanese banks are not commanding especially benign fundamental progression. Trends are either flat or eroding when it comes to core Profitability: NIM and ROE are on a downward path. The absence of top-line dynamism and modest B/S growth are concerns within a backdrop of rising credit costs and a stable cost-base.Dull can be good. But this trade may have reached saturation point given elevated global financial and FX risks and geopolitical uncertainties or even on a reflation trade. Valuations may not fully capture aforementioned risks with Taiwan at the centre of the US-China imbroglio and may lag on a recovery path.The PH Score is normally adept at identifying future winners. Some Taiwanese banks score well but a few too many lack dynamic numbers.

Too much excitement in investment decisions can work both ways. There can be a "Eureka" moment when everything comes together. There can be though emotionally-driven decisions that frankly miss the wood from the trees: one latches on to a concept at the wrong price.Investors in Taiwanese banks have been amply rewarded versus other EM banks over the years. Insights here have pinpointed the opportunity: E.Sun FHC: Here Comes the Summer , Taichung Commercial Bank: Further To Go , Taichung Commercial Bank: Credit Contracting as Impaired Loans Rise or CTBC: "Softly This Hand-Crafted News Reaches the Fresh Leaves" - Liu Qiyu . No "Eureka" moment but rather an appreciation of robust fundamental progression at the right price.There is nothing especially exciting about Taiwanese banks. They are generally pretty conservative risk-averse entities located in a country with a solid fiscal and monetary framework, a democratic structure, where technology opportunities abound. But valuations have become somewhat stretched on a relative basis, by regional and global measures. There is a "COVID" premium or what we call a "sober-safety" premium too. For these valuations to pay off going forward, a great deal must go right. The problem is that Taiwanese banks are not commanding especially benign fundamental progression. Trends are either flat or eroding when it comes to core Profitability: NIM and ROE are on a downward path. The absence of top-line dynamism and modest B/S growth are concerns within a backdrop of rising credit costs and a stable cost-base.Dull can be good. But this trade may have reached saturation point given elevated global financial and FX risks and geopolitical uncertainties or even on a reflation trade. Valuations may not fully capture aforementioned risks with Taiwan at the centre of the US-China imbroglio and may lag on a recovery path.The PH Score is normally adept at identifying future winners. Some Taiwanese banks score well but a few too many lack dynamic numbers.

Taiwan Banks: Dull Can Be Good but Risks Not Sufficiently Priced