Gustavo Ballvé on November 1st, 2011
Banks, Diversified financials, Food for thought, Home, Industries, Investment Themes, Mental models, Portfolio Management, Risk management, Signal or Noise

Three recent Financial Times stories with one theme in common: the rise of the middle class and the availability of credit. Looking at banks or diversified financials top-down is not our specialty, yet it’s part of gauging risks. Keeping this in mind, one of the articles is bullish and points to recent reports showing that credit here has actually accelerated in September, despite talks of banks – and financial authorities – reining in loan growth. It also mentions that property prices are still increasing in double digits in larger cities. The other two articles are also bullish but still reflect, in a way, the difficulties of sustaining such growth.

The first one describes Chinese car manufacturer JAC Motors’ amazing success story in entering Brazil from scratch, using cheap yet “complete” cars appealing to a middle class perhaps in search of a first car. Yet this story is at risk because of a sudden and relatively targeted regulation change – a change that has other Asian factories formally protesting it with the WTO (World Trade Organization).

The second article describes HSBC’s sale of its large consumer financing operation in Brazil, Losango. While the main motivation for the sale is certainly a CEO-led restructuring that has HSBC shedding assets and laying off tens of thousands globally, it doesn’t hurt that delinquencies are on the rise.

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