The bad news: Spain’s banks need somewhere between 40 billion and 100 billion euros to shore up its bad debt, which comes in the form of now non-performing loans, and of course, a decent dose of Greek debt. Things are so awful, the nation’s banking system is legitimately considering an outright credit freeze.
The good news: The EU just isn’t going to let that happen. The worst-case scenario from here is that the needed bailout money is found, the bad debt is written off on a GAAP basis but not on an operating basis, and Santander keeps on generating $90 billion in revs per year as if the crisis isn’t even happening. It’s the “don’t ask” move borrowed straight from the United States’ playbook. It’ll work there as well as it did here (which was pretty well).
Last but not least, China Telecom (NYSE:CHA) has been one of the hardest-hit names since last year, falling 37% from September’s cyclical peak, with nearly half that loss being taken since late February.
The bearish prod was founded on concerns of a slowdown in China’s economic growth — which, as it turned out, were somewhat merited. Those worries overestimated just how deep a slowdown in China would cut into personal consumerism, though.
Not unlike U.S. consumers’ newfound love with smartphones and wireless Internet, Chinese consumers are falling in love with their landlines (which are new for many users there) and mobile devices. For the same reason you wouldn’t give up your high-speed connectivity and mobile phone now no matter how tight the economy got, they couldn’t let go of their landlines, broadband and cell phones either.
The advantage that carriers like China Telecom have over American counterparts is that so much of the market there still is entirely untapped. Market penetration is happening faster than any broad economic slowdown could crimp it, which is why the company still is on pace for a fourth straight year of higher revenues and stronger earnings.
While it’s true that some — or even all — of these foreign names have more volatility to burn off, it’s also true that it’s easy to be penny-wise and pound-foolish. None of these names deserve to be trading where they are, and the market’s going to figure it out sooner or later.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.