NEW YORK (TheStreet) -- The "softer" monetary policy adopted by Western economies has created a liquidity deluge in emerging markets like Brazil and China. The central banks in these countries have moved in to purge excess liquidity, in a bid to prevent currency appreciation and formation of asset bubbles.
People's Bank of China has hiked reserve requirement rates for the third time in the last two months, and policy makers in Brazil have increased the reserve and capital requirements to flush out excess liquidity. The government of India has increased policy rates to hedge inflation fears, although the measures seem a little sanguine in recent weeks.
The Reserve Bank of India announced liquidity enhancing measures like open market operations and reducing statutory lending rate from 25% to 24% to address the persistent shortfall in domestic liquidity. Going ahead, the pattern in deposit growth, currency expansion, and government spending would be crucial in shaping liquidity conditions in the country. Another concern is the pricing pressure related to domestic demand and global commodity prices, experts suggest that broader inflation could be around 6-6.5% by March 2011.
Although Citigroup (C), JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) are trading at a discount in comparison to their emerging markets peers, our stock picks have higher growth potential.These 10 banks offer investment opportunities, going ahead. In our selection, Chinese and Brazilian banks are trading at roughly similar valuations of 2 to 2.7 times book and 1.8 to 3.1 times, while Indian banks look expensive at 2.1 to 4.6 times. These stocks are ordered by upside potential.
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