In the Canadian financials sector, a range of companies offer geographical diversification outside of Canada. While most banks or financial institutions have placed their focus on the U.S. market, Europe, or South America, few have garnered exposure to Asia that investors may be looking for, given out-sized growth expectations in most Asian countries when compared to Western markets.
Manulife Financial Corp. (TSX: MFC)(NYSE: MFC) is a great example of a TSX-traded company that has placed a heavy focus on Asia as a core business centre. The company has focused on selling its insurance products to the largest middle class in the world in China, working with major banking institutions in the area, such as Singapore’s DBS Group, to facilitate the distribution of its products throughout Asia.
The growth strategy is simple: focus on high-growth geographic areas — specifically, parts of the world with under-served populations looking for insurance products. Asian markets have traditionally provided more volatile, but higher, returns for investors in recent years. While regulatory hurdles remain, partnering with widely respected entities in the region for distribution of financial products with very decent margins is a solid business model, one which has propelled the company forward in a big way in recent years.
In early May, Manulife reported earnings, with Asian top- and bottom-line performance driving a significant earnings beat. The company reported earnings of $1.3 billion compared to $1.1 billion a year earlier, supported by earnings growth in the company’s Asian business unit of nearly 20%. Currently, Manulife’s Asian business unit accounts for approximately one-third of the overall profit of the financials giant; however, given the fact that this segment is growing at a rate which is approximately twice as fast as its core business, I expect Manulife to become increasingly tethered to the Asian markets in the years to come.
Following strong earnings, Manulife’s share price appreciated nearly 10% — over the past of couple months, however, shares of Manulife have dropped to pre-earnings levels, suggesting another strong quarter of performance could send shares much higher in the medium term for investors willing to buy this dip.
Bottom line
An Asia-specific strategy is something many investors may not be comfortable with, either due to a lack of knowledge about Asian markets in general or the sheer uncertainty and volatility, which comes with investing in a company that is heavily based overseas. That being said, the numbers don’t lie — Manulife has done a terrific job of generating shareholder value by putting its money to work in global markets that have outperformed. For those looking to bet on Asia long term, Manulife is a company that should be considered at the top of the list.
Stay Foolish, my friends.
