Home SK - Stocks, Property, Investment Chamas - Investment Groups BIZ - Small Business Soko - Market Wazua Life About Wazua
SIGN IN REGISTER
Monday, Jun 17, 2019
Investor
We’re investing funds for profit. Join us and wazua!
LATEST DISCUSSIONS
Kenya Airways...why ignore.. [12923]
KenGen HY 2019 [67]
1/4 Acre for Sale - Nkoroi [17]
KenyaRe FY19 - FY23 (Both Inclusive) [230]
KCB and NBK material announcement [96]
Sameer smeared? [27]
Bitcoin: Does it have a future ? [1092]
Centum HY 2018/2019 [69]
Mumias Sugar huge demand [2614]
Atlas Development and Support Services listing in ... [99]
Sameer Africa HY18 [6]
STOCKS TO BUY by yaserbigchair [149]
Buying stocks in tandem with the dividends calenda... [6]
Elliott Wave Analysis Of The NSE 20 [3136]
Eye on I&,M ... [108]
 
Forum Jump








Welcome Guest Search | Active Topics | Log In | Register

16 Pages123>»
Portfolio Balancing: Avoid Over Exposure To Financial Sector
young
#1 Posted : Monday, December 13, 2010 11:30:15 PM
Rank: Elder


Joined: 6/20/2007
Posts: 1,862
Location: Lagos, Nigeria
If you do not take long positions in a stock that is you only speculate, then this thread is not for you.

For long term investors especially in sub saharan African markets, has it ever crossed your mind that your choices of most of your stocks are skewed towards the Finance sector ?

The reasons are obvious :=

They are the most profitable sectors
They are the most liquid sectors.

But be awasre that your greatest risk is in this sector because :-
Your exposure to risk is far more than other sector namely :-
1 High risk Of non performing loans
2 Wrong disclosure of balance sheet entries, auditors are only exposed to what the banks want them to see

3 The spiral effect on other banks because of interbank setlement which if consistently defaulted by a few distressed banks can affect the books of other banks.

The insurance firms are not spared either as they invest heavily on bank stocks.

What ever the returns my take is that you should not expose your porfolio more than 40% of your holdings on finance sector as a leverage.

The industrials seem to be more stable and consistent during turbulence, but their returns may not be as salutable as banking counters.

If majority of your counters is in banking or finance stocks my candid advise is that you need to rethink and re-balance your porfolio.
The banking sector is an ill wind that has already blown in US, Europe. In Africa, Nigeria investors learnt the hard lesson, for those whose portfolio were over exposed to banking stocks, it can happen to any other market.

I know of some investors that do not invest in Banking stocks at all due to obvious reasons above.
Even in Banking you have to split your portfolio between the agressive banks and the value banks.

Your aggressive bank I can pin point are:-
(i) KCB
(ii) Equity
(iii)COOP
(iv) HFC
(V)NIC
(Vi) DTB etc

For the consevative banks I can pin point

(i) Stan Chart
(ii) Barclays

During bullish run aggressive banks take the lead, but during bear run, the conservative banks are more reliable.
I suggest out of your 40% allocation to finance sector, give 40% of it to agressive bankS, 50% to conservatives and 10% to the insurence compnies. With this you will have 60$ of your portfolio spread ON the industrial and other sectors.
Simply put it is not very balanced or not so ideal to be too exposed to financial sector no matter how attractive it is as on the longer term you may tend to loose more.

So check your portfolio and see how exposed you are to the finacial sector ?. Is it not worthwhile to re-balance your portfolio ? The decision is yours.

Happy investing
young attached the following image(s):
balancerv.jpg (2kb) downloaded 8 time(s).
The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
erifloss
#2 Posted : Tuesday, December 14, 2010 8:04:12 AM
Rank: Member


Joined: 6/21/2010
Posts: 514
Location: Nairobi
@Young, very true coupled with the aggressive banks overtrading on bonds, high investments & borrowings skewed towards 'real estate' mortgages in a market where the basis of real estate valuation is unknown. I tend to think that the real estate time bomb will blow courtesy of mortgage defaults 'fannie may style' & when it happens the over-supply of real estate in the market will bring the house prices down in turn devaluing whatever securities the banks are holding.
'They say money cannot buy me happiness but when i compare when i had none and now, i'm happier' Kevin O'leary
Gatheuzi
#3 Posted : Tuesday, December 14, 2010 7:47:07 PM
Rank: Veteran


Joined: 8/16/2009
Posts: 975
Iam 100% in banks. However the advice is true looking at the situation in the US.

My rebalancing will be just before 2012 when I plan to move to the real estate.
Time is money, so money is time. Money saved is time gained in reverse!
sheep
#4 Posted : Tuesday, December 14, 2010 9:21:50 PM
Rank: Veteran


Joined: 7/24/2008
Posts: 781
I am also heavily weighted in the financials...in 2008 everything got hammered,it didnt care which sector you were in...unless they intro the commodities market....we are sitting ducks whether diversified or not.
The utimate goal of investing is to buy low sell high;if we re-write this core equation in psychology terms it becomes buy fear sell greed.
young
#5 Posted : Tuesday, December 14, 2010 10:12:04 PM
Rank: Elder


Joined: 6/20/2007
Posts: 1,862
Location: Lagos, Nigeria
@sheep permit me to chip in here, in terms of recovery after general economic melt down like what happened in 2008, blue chips industrials always out peform blue chip financial not only in NSE but in other markets.
Lets take a look at a few blue chips on both sectors :-


FINANCIALS
High of KCB in 2008 was 32.5 bob
High of BBK was 98 Bob

Now KCB is 22 bob plus
BBK is now 56+ bob
Replace KCB with equity that was 300 (Pre split) in 2008
the story is the same, it is yet to attain 30!

None of them has recovered to that high

INDUSTRIALS

The High of EABL in 2008 was 194 bob
The high of ARM in 2008 was 137 bob

Now EABL is 200+, ARM is 170+

Both have a gone above the highs of 2008


If you invest in other markets like Ghana, Botswana, RSA, Hong Kong or US etc the story is the same.

The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
erifloss
#6 Posted : Wednesday, December 15, 2010 8:29:51 AM
Rank: Member


Joined: 6/21/2010
Posts: 514
Location: Nairobi
Got some insight on Sunday on some of these aggressive banks, was told that most of them try as much as possible to maintain a higher core capital to deposits ratio than that required by the regulator as most large investors look at this but the truth of the matter normally is that alot of fishy stuff takes place on their loan portfolios. Most of their risk management departments even pass risky loans due to cronysm. Then i remembered JM, when he was the financial director of TRUST BANK, what happened!!.
'They say money cannot buy me happiness but when i compare when i had none and now, i'm happier' Kevin O'leary
My 2 cents
#7 Posted : Wednesday, December 15, 2010 9:00:29 AM
Rank: Member


Joined: 6/2/2010
Posts: 578
erifloss wrote:
Got some insight on Sunday on some of these aggressive banks, was told that most of them try as much as possible to maintain a higher core capital to deposits ratio than that required by the regulator as most large investors look at this but the truth of the matter normally is that alot of fishy stuff takes place on their loan portfolios. Most of their risk management departments even pass risky loans due to cronysm. Then i remembered JM, when he was the financial director of TRUST BANK, what happened!!.


You will not be popular in Wazua if you start picking on EIB or JM......
young
#8 Posted : Wednesday, December 15, 2010 1:22:58 PM
Rank: Elder


Joined: 6/20/2007
Posts: 1,862
Location: Lagos, Nigeria
A lot of bank books are rusty with carry over of NPLs and cover up balance sheet entries, more of window dressing for external auditors. It is a global problem.
But when the bubble burst (uncovered), ordinary shareholders like you and me are the worst affected because the first impact will be a sharp drop in share prices.
The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
sparkly
#9 Posted : Wednesday, December 15, 2010 1:35:30 PM
Rank: Elder


Joined: 9/23/2009
Posts: 6,929
Location: Enk are Nyirobi
young wrote:
A lot of bank books are rusty with carry over of NPLs and cover up balance sheet entries...

@young in kenya the main problem esp in the late 80s and the 90s has been poorly capitalised banks and a poor regulatory environment.
Life is short. Live passionately.
bwenyenye
#10 Posted : Thursday, January 06, 2011 3:46:01 PM
Rank: Elder


Joined: 5/24/2007
Posts: 1,791
@ Young,

I will tellyou from expereince in Kenya that the regulation of banks in Kenya is extremely high. Yes there is some window dressing on the loan front but I can assure you that it is very very minimal as at today. As stated earlier, most banks that collapsed in the Kenya, were purely out of political interference and lack of control from the regulator. In Kenya, the regulator personally audits the loan books of banks and it is not unheard of for them to refuse to accept audited accounts from major audit firms until some changes are done. BTW CBK standards on provisioning are much higher than IAS. The bank will not publish without CBK approval. Generally, what I am saying is that, unless the CBK wants a bank to collapse, it is very difficult for the situation you are envisaging to happen. For example, if CBK feels a bank is over exposed on mortgages, it has the power to demand that is provides more thus hitting its capital. The problem normally comes when politics gets into play and CBK is overruled or Orengo revokes titles that had been used to secure loans.

I know that here has been talk for a while about a proprty bubble burst in Kenya. What I think is more real is a slight correction. By the way, you may be surprised to learn that most high cost houses are actually bought cash. Loans are mainly for the middle class who are not as much. The real estate developers are moving to the lower market of btn 3- 5M. Let us see what they say when they can now afford the houses.
Do not think inside the box. Neither think outside the box. You should remove the box and think free!!!! Peter Kenneth
youcan'tstopusnow
#11 Posted : Thursday, January 06, 2011 8:49:19 PM
Rank: Chief


Joined: 3/24/2010
Posts: 6,779
Location: Black Africa
young, the market has been on an upwards trend the last few days, thanks in no small part to the financial sector. They will benefit immensely from the growing economy. (I hope the drought won't be as bad as the previous ones) Do you still hold the view of ''not more than 40 percent exposure?''
GOD BLESS YOUR LIFE
youcan'tstopusnow
#12 Posted : Thursday, January 06, 2011 8:51:06 PM
Rank: Chief


Joined: 3/24/2010
Posts: 6,779
Location: Black Africa
bwenyeye, I believe 3-5M is too high to be termed lower market
GOD BLESS YOUR LIFE
young
#13 Posted : Friday, January 07, 2011 1:34:42 PM
Rank: Elder


Joined: 6/20/2007
Posts: 1,862
Location: Lagos, Nigeria
Happy new year Youcant,

Max 40% exposure to financial sector is not what I believe it is a universal best practice for long term investors and fund managers.
Some school of thoughts even advocate for 20% max.
The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
Gatheuzi
#14 Posted : Saturday, January 08, 2011 9:27:58 AM
Rank: Veteran


Joined: 8/16/2009
Posts: 975
@ youcant I think what @ bwenyenye is saying is true. With 3-5M you can only get a morgage for an appartment or a semi-detached unit in Embakasi unless you do the construction uaself.

BTW I read sometimes last year the Equity was partnering with a Chinese Property Dvt Co to put up low cost appartments that will target low end market at about 2M per unit. This was to be achieved by maximising on land whereby they will go up 20 floors.
Time is money, so money is time. Money saved is time gained in reverse!
guru267
#15 Posted : Saturday, January 08, 2011 10:38:00 AM
Rank: Elder


Joined: 1/21/2010
Posts: 6,633
Location: Nairobi
young wrote:
Happy new year Youcant,

Max 40% exposure to financial sector is not what I believe it is a universal best practice for long term investors and fund managers.
Some school of thoughts even advocate for 20% max.

@young i totally agree with you that investors shouldn't expose themselves more than 40% to ANY sector...

But to take advantage of the current rally i'm almost 60% into financials but i expect to reduce this to 35% when end of february hits
Mark 12:29
Deuteronomy 4:16
young
#16 Posted : Saturday, January 08, 2011 12:23:46 PM
Rank: Elder


Joined: 6/20/2007
Posts: 1,862
Location: Lagos, Nigeria
Greetings to you @guru267, the financial sector is of special mention, as a cautionary measure to preserve long term investors capital sequel to the recent global financial sector crisis that first emanated from US financial institutions and spread spirally to Eurrope and the whole world.

A new policy guideline from the regulatory authorities in my country Nigeria has been put in place to preserve retirees funds,it stipulates that pension fund administrators are not permited to invest more than 20% of their income on Stock market, and not more than 5% on Financial stocks.

Previously, they were not allowed to invest in Real Estate, but the new policy allows up to 20% investment in Real estate, notably a mixture of commercial and residential property development.
The wazua spirit as members is to educate and inform and learn from others within the limit of what we know in any chosen area irrespective of our differences in tribes, nationalities, etc. .
youcan'tstopusnow
#17 Posted : Saturday, January 08, 2011 1:13:14 PM
Rank: Chief


Joined: 3/24/2010
Posts: 6,779
Location: Black Africa
Gatheuzi wrote:
@ youcant I think what @ bwenyenye is saying is true. With 3-5M you can only get a morgage for an appartment or a semi-detached unit in Embakasi unless you do the construction uaself.

BTW I read sometimes last year the Equity was partnering with a Chinese Property Dvt Co to put up low cost appartments that will target low end market at about 2M per unit. This was to be achieved by maximising on land whereby they will go up 20 floors.

How much are the houses being built in Kibera by the government going for? Or they are only for renting?
GOD BLESS YOUR LIFE
erifloss
#18 Posted : Saturday, January 08, 2011 7:03:58 PM
Rank: Member


Joined: 6/21/2010
Posts: 514
Location: Nairobi
The reality is everyone is greedy & that whatever is on a policy paper is not what the market shows or investors want. Wall street brought the recession but the funniest thing is new millionaires come out these firms like everyday and maths geniuses are employed by these guys to crunch numbers on new investments. Remember you'll always need financial institutions and what happens within only the insiders know, make money while its being made but know when to get out.
'They say money cannot buy me happiness but when i compare when i had none and now, i'm happier' Kevin O'leary
jmbada
#19 Posted : Sunday, January 09, 2011 1:17:55 AM
Rank: Member


Joined: 1/1/2011
Posts: 366
Hi,
Can anyone share any insight into the laxity / stringency of bank lending standards on unsecured funding? the sense i've gotten from alot of people is that an overwhelming chunk of mortgages are 100%+ financed (i.e. a zero downpayment mortgage) or an 80% mortgage with 20%+ personal loans unsecured. Is this a common occurrence? Welcome your thoughts / insights.
guru267
#20 Posted : Sunday, January 09, 2011 11:04:24 AM
Rank: Elder


Joined: 1/21/2010
Posts: 6,633
Location: Nairobi
young wrote:
Greetings to you @guru267, the financial sector is of special mention, as a cautionary measure to preserve long term investors capital sequel to the recent global financial sector crisis that first emanated from US financial institutions and spread spirally to Eurrope and the whole world.


@young it is very obvious that American, European and even Nigerian central were very lax with policy that left all their commercial banks seriously exposed...

That said i'm in love with the Kenyan central banks policy towards commercial banks and that is why every single one of kenya's listed commercial banks posted not just profits but profit growth all through the world recession which boosted my confidence in them even further...
Mark 12:29
Deuteronomy 4:16
Users browsing this topic
Guest
16 Pages123>»
Forum Jump  
You cannot post new topics in this forum.
You cannot reply to topics in this forum.
You cannot delete your posts in this forum.
You cannot edit your posts in this forum.
You cannot create polls in this forum.
You cannot vote in polls in this forum.

Home | . .. Investor | .. . Groups | .. . SME | . . . Market | .. . Club SK | . ..... About Wazua | . .. Search | . ..Sitemap | . ..Support | . ..Disclaimer | . ..Privacy Policy | . ..Terms of Use | . .. Contact Us
Copyright © 2019 Wazua.co.ke. All Rights Reserved.