Buy This Sector to Beat the European Sovereign Debt Crisis (The Motley Fool)

The sovereign debt crisis in Europe is beginning to take a tone very reminiscent of the credit crisis that plagued the U.S. in 2008. The domino effect of a potential Greece debt default coupled with worries that the same thing could happen in Portugal, Spain, and Italy is creating a dicey situation for investors who often look to foreign markets for investing diversification. So what's a long-term investor to do? How about the exact opposite of what you'd have expected?

Returns you can bank on
Buying bank stocks in Europe could be your ticket to ridiculous returns over the next few years as the credit crisis stabilizes and investors' emotions come into check. Understand that European banks don't have a magic pill that's going to transform them into profit-producing machines overnight, but the worries surrounding many of its largest banks may be overdone. Specifically, focusing on banks that are based in the United Kingdom could be your ticket to success.

Many of the largest European banks have very little exposure to the troubled EU countries -- Greece, Italy, Portugal, Spain, and Ireland. Barclays (NYSE: BCS - News), Lloyds (NYSE: LYG - News), Royal Bank of Scotland (NYSE: RBS - News), and HSBC (NYSE: HBC - News) all have relatively minimal exposure to sovereign debt from the PIIGS. Currently making up 1.26%, 0.01%, 0.15%, and 0.27% of total assets, it makes little sense to lump these banks in with the rest of the sector that is in trouble.

Secondly, these banks all share the common trait that they have globally diverse operations. In short, these banks aren't just sovereign lending entities. They have personal and commercial lending segments, as well as personal investment divisions -- and investors seem to have forgotten that.

They've also forgotten just how profitable these European banks are. With the exception of RBS, these companies are trading at single-digit forward P/E ratios with impressive five-year growth expectations. Barclays and HSBC analysts anticipate growth of 23% annually over the next five years while Lloyds, which was hit much harder in the recession of 2009 than many other banks, is expected to grow at a blistering 69% per year.

Based on their assets, these banking giants are also inexpensive. Barclays, RBS, and Lloyds all trade significantly below their book value, with HSBC trading at a mere 1.1 times its book value. To boot, Barclays and HSBC are paying a highly sustainable dividend currently yielding 1.8% and 3.7%, respectively.

You're up, Europe!
With lower exposure to sovereign debt than even some of the United States' largest banks, it makes sense to consider investing in U.K.-based European banks. I'm even willing to speculate that a portfolio evenly divided among these four banks could easily outperform a portfolio divided evenly among the four largest U.S. banks over the next three years. While I can't make your investing decisions for you, I highly recommend you at least get these four banks on your watchlist and consider giving Europe another look.

Add Barclays, Lloyds, Royal Bank of Scotland, and HSBC to your watchlist.

Fool contributor

Sean Williams

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US, European people lag Asians in pension savings: HSBC (AFP)

LONDON (AFP) – Global banking giant HSBC warned of a "major East-West divide" over pensions on Thursday, as workers in Europe and the US struggle to match their Asian counterparts in adequately saving for retirement.

The London-based bank revealed the findings in a report entitled 'The Future of Retirement' after surveying 17,000 people in 17 countries about attitudes towards pensions.

HSBC said the report highlighted "the emergence of a major East-West divide in retirement perceptions."

It added: "The impact of the economic downturn has had a measured impact, particularly in the developed economies of North America and Europe where many people now expect to be worse off than their parents when they enter retirement.

"However, this view is by no means universal with households in many parts of the world having come through the global downturn with their aspirations for a prosperous retirement largely intact.

"This is particularly true in the economic powerhouses of the emerging markets such as India and China," HSBC said.

The bank's head of investments, pensions and savings, David Wells, said that "unless Westerners take a leaf from the book of their Asian peers and start to be accountable for their own futures, sadly many will find their fears of financial hardship in later life come true."

HSBC said half of those questioned in its global survey did not have a financial plan while 41 percent felt under-prepared for retirement.

The survey also showed that 32 percent of respondents expected to face financial hardship when they retired -- but this figure fell to 17 percent in China.

The bank said Chinese households saved the equivalent of 38 percent of gross domestic product (GDP), while in India the figure is 35 percent. That compared with just 3.9 percent in the United States.

Some nations have introduced compulsory plans to change behaviour but HSBC stressed further education was necessary.

"The financial services industry clearly has a role to play in jolting the non-planners into action," it said. "The role of brand and marketing needs to be accompanied by a mix of other interventions."

The bank appealed for "greater funding of financial education programmes creating basic levels of financial education and awareness."

Additionally, it suggested that governments could provide tax relief on workers' pension contributions.

"The key message in this report is that those who take the time to put in place a financial plan are far more likely to enjoy a positive retirement," HSBC concluded.

"As our findings show, financial planning has the power to transform our well-being in retirement."

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