International stock valuations ‘are much more attractive,’ ERShares COO says
ERShares COO Eva Ados joins Yahoo Finance to discuss bank earnings, international and emerging markets, the Fed funds rate, and technology stocks.
KARINA MITCHELL: I want to stay on the markets and bring in our guest Eva Ados from ER Shares, the COO there. Thank you so much, Eva, for being with us. I want to turn your attention, first of all, to the bank earnings that came out– and Jared touched on them just a second ago.
Wells Fargo sort of bucking the trend today and coming out stronger. It said loan growth, based primarily on consumer borrowing, increased. And it also made huge cuts in its cost, in its expenses. On the flip side, JP Morgan said that investment banking did help it, but it had a big miss on equities trading.
And it was helped along by that $1.8 billion loan reserve release. Otherwise, EPS would have missed Street estimates. Citigroup, similar sort of thing there. So I’m wondering, my question is, is this a harbinger for the rest of the banking sector as their earnings roll out? And have we seen the peak in banking?
EVA ADOS: I think it’s a lot of company-specific information. As you said, we have more news towards the downside rather than the upside. But Wells Fargo is up. And as you said, we see in some cases, such as First Republic, down because of unforeseen expenses, JP Morgan same issue. Then you have BlackRock, down because of miss in revenue.
So it’s mixed results. Overall, we do like the financial area because of the inflationary environment. And these companies are able to pass along cost increases associated with interest rate hikes. So we continue to like financials as we move on into 2022.
There’s one company that we have on the spotlight. That’s Signature Bank. And it’s a hidden gem, because that company combines an inflation hedge, a commercial bank, and also a fintech play all in one. So you get the conservative inflation, value-oriented bank side of it, but also it’s a leader in fintech. It’s one of the few solutions that allow peer to peer immediate clearance of payments. So companies under their umbrella can transfer money and clear instantly 365 days a year and 24/7.
ALEXIS CHRISTOFOROUS: Would like to get your take on what’s happening in the forex markets, because I know the dollar has been trending lower. It looks like it’s higher today, maybe snapping that three-day losing streak, but just by a little bit. So how does a declining dollar play into a portfolio allocation right now?
EVA ADOS: That’s exactly right. So we think now that we are moving forward that we might see more and more funds flows towards non-US equities. And the reason is, as you mentioned, the dollar declining because of two reasons– rising interest rates and also rising trade deficit.
The other reason for that is the fact that the relative valuations when it comes to international investing are much more attractive. So both of those reasons make international markets and emerging markets very attractive. And the trend has already started. If you see year-to-date numbers, the four largest French companies, the CAC Index, is outperforming the S&P 500 by 2.5%.
KARINA MITCHELL: So I want to turn your attention to inflation. Obviously, we just got the latest handle at 7%. Do you see that as a peak or does it go higher? And then how many rate hikes do you envision? We just had Lael Brainard at her confirmation hearing saying hike in March.
EVA ADOS: We believe that inflation is peaking. But we are very concerned when it comes to interest rate hikes. The 10-year and the 30-year both increased by 1/3 over the last month. That’s a significant increase, and that happened without the Fed taking any specific action. So what we’re most concerned is not how many rate hikes the Fed will actually implement, rather than what’s going to happen when the Fed tapers back to zero.
So they have been buying $120 billion of US debt a month. That is soon going to end. So the question is, who is going to buy the US debt? And in the absence of foreign buyers, interest rates can skyrocket.
ALEXIS CHRISTOFOROUS: Outside of energy and outside of financials, what else do you like right now? And is there anything in particular that you are unloading or staying away from?
EVA ADOS: As we see 2022, we believe the first part of the year, we will see slow and steady win the race. And by slow and steady, I mean companies that are more conservative not just in financials or energy, but in general– any category– more conservative, modest PEs, and very good cash flow generation. And that can be found in financials, also in some technology pockets.
Some very cash rich, mature companies can offer an inflation hedge, if you see it from the fact that they– they are not dependent on external financing. So that’s very important when it comes to an inflationary environment. So there are some technology companies that we do like. And for the latter part of the year, as the yield curve we believe will start flattening, then we’ll see investors embrace more risk and a return to growth assets.