Why invest in bank stocks when you can directly hold their most profitable assets?

01 June, 2016

Bank stocks are part of any balanced portfolio. However, over the past 10-years, US and UK banks have under-performed the MSCI Index by 50% and 69% respectively. In Hong Kong too, banks have lagged the broader HSI Index by 50%.

Chart 1: Performance of US and UK Bank Index relative to the MSCI Index


Source: Bloomberg, PSG Asset Management

Chart 2: Performance of HSI – Financials relative to the HSI Index


Source: HSI Indices

But there is a smarter way to reap the benefits of holding bank stocks assuming that you are a long term investor (and hence liquidity is not your primary concern).

Globally, 65% of a bank’s revenues come from interest income earned on loans made by the consumer and corporate banking divisions, not including mortgages.

Chart 3: Where does a Bank’s Revenue Come From?


Source: SNL, Deutsche Bank

Peer to Peer lending on platforms like www.monexo.co gives investors an opportunity to directly extend credit to pre-screened borrowers and create a loan portfolio, thus allowing them to participate in all the upside of lending within a controlled risk environment.

Investing on Monexo, Hong Kong’s first true Peer-to-Peer lending marketplace, is an easy 3–step process.

1) Monexo screens and prices each loan based on a variety of risk factors and then lists the loan on its marketplace.

2) Lenders choose the loans they want to lend to, based on their risk appetite and resources. Diversification can reduce default risk and also help the investor earn higher interest by participating in loans of a range of interest rates.

3) Borrowers repay the principal plus interest on a monthly basis so investors get a steady stream of income and earn a much higher return than they would from a bank deposit or dividends of bank stocks.

Over the last year, the average return that a Monexo lender received was 12.5%, while loans ranged from 7.5% to 25% depending on the borrower’s credit rating. For comparison purposes, saving account interest rates in Hong Kong are 0.01% and the HSI Financials Index returned -35.2%. For Part 1 of our Blog on the Lazy Money in the Hong Kong Banking system, click here.

You can read more about Peer to Peer lending and Monexo in our guide HERE

So, come onboard Monexo today and be a part of the financial revolution!