Siam Commercial Bank (BKK:SCB), the largest retail bank in Thailand, is a new addition to the Fund. During late 2013 and early 2014, Thailand lacked a functioning government, and the country’s stock market suffered. Siam Commercial’s stock was no exception, as its valuation declined to eight times forward earnings. During prior periods of political uncertainty, the Thai economy continued to grow, and Siam Commercial delivered an attractive return on shareholder’s equity and increased its book value per share.
As a part of our due diligence process for owning Kasikornbank in Thailand, we had closely followed Siam Commercial to understand the competitive landscape. After conducting additional in-depth research, we concluded that these political concerns provided us with a long-term investment opportunity at a low valuation. Siam Commercial’s leading positions in retail banking and fee-related financial services provide it with a durable franchise. We believe that the company’s high return on equity—generated by a combination of stable net interest margins, high fee income, ample provisions, efficient operations, and moderate leverage—is sustainable over our investment horizon. Furthermore, we believe that Siam Commercial is well prepared to absorb economic volatility, given its high profitability, capital levels, and loan loss reserves. After weighing these opportunities against the political risk, we initiated a position; Siam Commercial was a 0.4% holding in the Fund at year end.
From Dodge & Cox’s Global Stock Fund Q4 2014 Shareholder Letter.
