Trying to internationally diversify for your portfolio can be a daunting task, especially if you’re only familiar with Canadian stocks. Where do you begin? You could open an account that allows you to trade on certain foreign markets, but for Canadians, there’s an easier way to get exposure to the fast-growing foreign markets.
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is one of the most internationally diversified Big Five banks that allows investors to get the extra growth from emerging markets without taking on an excessive amount of risk.
Foreign markets: Slightly higher risk; much higher reward
Bank of Nova Scotia has been expanding into developing countries like Colombia, Peru, Mexico, and Chile. While such markets may present an elevated amount of risk, I believe the growth rate offered by these Latin American countries is well worth it, especially if you have no exposure to such fast-growing economies.
Some would argue that being overexposed to Canada would be the riskier move, especially considering how sensitive the Canadian economy is to commodity prices. Bank of Nova Scotia’s Latin American business is a great hedge if you find that your portfolio is overexposed to the Canadian economy.
Why the recent dip?
All of Canada’s banks took a step backward after soaring last year thanks in part to growing fears over Canada’s housing market, which many would agree is in bubble territory. Bank of Nova Scotia has $195 billion worth of Canadian mortgages as of the end of Q1 2017. Of these mortgages, 56% are insured from a housing collapse.
I believe the fears of a housing collapse are way overblown, especially because Bank of Nova Scotia isn’t as exposed to the housing market when compared to some of its peers.
What about value?
At the time of writing, Bank of Nova Scotia is down just 4% from its 52-week high with a 3.88% dividend yield. The stock currently trades at a 12.47 price-to-earnings multiple, which is slightly higher than the company’s five-year historical average price-to-earnings multiple of 11.5. The price-to-book multiple is also in line with historical averages at 1.7.
Shares are definitely not cheap right now since they rebounded quicker than a lot of its Big Five peers. If a cheap bank is what you’re after, then you’re probably better off with another bank at this point. But if you’re keen on getting exposure to faster-growing emerging markets, then you may want to consider buying shares of Bank of Nova Scotia on any dips that may happen.
Stay smart. Stay hungry. Stay Foolish.
