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Financials Weekly - 05/17/09

Financials have had a strong rally for the past few months. Most banks globally are up 30% on average. I believe there is still a 20% upside in some banks which have not reached their historical average price to book value yet.

US Banks: I would not invest in US banks just yet. They have had a huge run but their fundamentals are very well priced in at this point. I believe JPM and GS are the clear winnners but at current prices are expensive.

Asian Banks: In my opinion Asian Banks will outperform all other banks going forward for the next couple of months. I like banks in India, Singapore and Korea.

Indian banks have very strong capitalization and are a very good leveraged play on the economy. NPL's have risen for some of these banks because of the retail exposure but strong loan loss coverage ratio's will help these banks perform well in the current credit cycle.

Korean Banks have had a huge run. But some of them are still cheap and there is money to be made. These banks have strong capitalization ratios and very low NPL's.

Singapore banks present the maximum upside from here on. These banks have taken a hit last couple of quarters because of significant mark downs on their AFS portfolio, with securities markets now improving a lot of the writedowns will be reversed which will boost profitability.

European Banks: In Europe most banks have be priced in accordance with their fundamentals. I think the banks in UK, France and Germany have limited upside. I would invest in the Greek Banks and the Italian Banks. The spread of the government bonds of these countries over the German bunds have been falling and this shows an improvement in the health of these economies.

Brazilian Banks: The big Brazilian banks reported last week and the trend has been flat earnings. The main reason has been provisioning for future loan losses. I believe the banks are fundamentally very strong. With commodity prices improving I like Brazil. I think these banks are still cheap and investing in some of these banks will be a good idea.