Thursday, January 3, 2008

Financials: Are Eastern Investors Picking the Bottom Again?

I wonder when American investors will finally realize Chinese and Middle Eastern investors are on to something?

After the recent Abu Dhabi (investment in Citigroup (C) and China's investment in Merrill Lynch (MER), word out of Kuwait is that KIA, the Kuwait Investment Authority is set to "speed up" its decision making process in order to beat rivals to investments in financial services firms. This is notable at the KIA sits on $213 billion in funds.

"Perhaps we are at the eye of the storm and close to the peak of the problem" said Bader Al-Sa'ad its investment head.

All this must lead one to remember the S&L crisis and Saudi Prince Alwaheed's investment in Citigroup at a split adjusted $2 a share. Middle Easterners have proven deft investors in US securities over the years. One must contrast them to the Japanese who during the same time frame where running around buying golf courses and buildings at inflated prices.

When you are not at the vortex of the panic, it is far easier to see through to the the other side of it. Eastern investors are placing massive bets on US banks and financial services firms while US investors are running scared from them. The reason? My guess is that these foreign firms see the international operations of a Citigroup and recognize they are still earning money in their other areas of operations and that the US housing issue is a temporary one. They are not watching a friend try to sell a house or are hearing about another losing theirs and from that getting sucked into the panic. The nightly newscast they see does not recount story after story about the "housing crisis". Because they are so detached, they are able to take a completely antiseptic look at the bank's operations and invest accordingly.

That being said, temporary disruptions often times lead to mis-priced assets that can then be bought a bargain prices.

That is exactly what is happening in US financials now..

Disclosure:Long Citi

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