The Upside and Downside of Global Risks in 2019: Infographics

Investors have to brace themselves for plenty of risks in the coming year. From trade wars to real wars(Russia invading Ukraine, for example) and everything in between including further oil price collapse, currency risks, geopolitical risks, never-ending political drama in Western Europe, China collapse, even political risk in the US, etc. will be closely watched by investors. The following infographic shows some of the potential upside and downside risks globally in 2019:

Click to enlarge

Source: Alliance Bernstein

Canadian Stocks Are Cheaper Than US Stocks: Gluskin Sheff

The Canadian stock market has under-performed the US market for many years now. For instance, while the S&P 500 is downy 1.52% year-to-date based on price, the S&P TSX Composite Index is off by 8.7%.

The following chart performance of the two indices in the past 5 years:

Click to enlarge

Source: Yahoo Finance

According to David Rosenberg, chief economist at Gluskin Sheff and Associates, Canadian stocks look cheap now. From an article at MaClean’s:

The macro news in Canada may indeed be bad, but that bad news is likely already in the price. Consider for a moment that there has been no bull market north of the border this cycle as there was in the United States. The Canadian stock market is no higher now than it was in the summer of 2008—ten years of nothing but a whole lot of volatility and your reinvested dividend in the blue-chip banks. Yet corporate earnings have risen more than 30 per cent over this time frame, with nothing to show for it from a market price standpoint. In other words, the Canadian stock market is cheap. Dirt cheap. The forward price-earnings multiple (p/e)  is beginning to resemble that of an emerging market, and no, despite our challenges, we are not anywhere close to being an emerging market. Not yet, anyway. That p/e multiple has compressed all the way down to a mere 13.3 times, the lowest it has been in well over five years and the two-and-a-half percentage point discount that the S&P/TSX Composite Index trades at currently vis-à-vis the S&P 500 is the widest the valuation gap has been since June 2004 (normally, both markets trade with the same multiple). Canadian bears may want to dig into the history books because in the year that followed, the TSX rallied 16 per cent versus 4.5 per cent for the S&P 500. That was as tough a sell then as it is today, but either you believe in reversion-to-the-mean, or you don’t.

Source: The most important charts to watch in 2019, MaCleans

Investors looking for opportunities in Canada can consider the following stocks for further research:

Bank of Nova Scotia (BNS), Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CM), Royal Bank of Canada (RY), Toronto-Dominion Bank (TD), Canadian National Railway Co (CNI), Canadian Natural Resources Limited (CNQ), Canadian Pacific Railway Ltd(CP), BCE Inc (BCE), TELUS Corp (TU)

Disclosure: All five banks listed above, CNI

Sector Breakdown of MCSI AC World vs. MCSI UK Index: Chart

The following chart shows the sector breakdown of MCSI All-Country Index and MCSI UK indices:

Click to enlarge

Source:Three reasons to diversify in the hunt for equity income, Schroders

The biggest difference between the indices is that the IT sector accounts for 19.5% in the MSCI World Index while in the UK the sector is so tiny it is grouped with the ‘Other’category. Consumer staples is another sector which varies widely between the two indices. In the MSCI World Index it accounts for just over 8% whereas in the UK index it is more than double at 17%.

From an investment perspective, UK investors have to careful focusing too much on a domestic-companies based portfolio mimicking an index since the equity market is heavily concentrated in just three sectors – financials, energy and consumer staples.

The Top 20 of the Largest US Airports

The Wall Street Journal published its first ranking of the top 20 of the largest US airports. Denver topped the ranking followed by Orlando and Phoenix.

Click to enlarge

From the article:

The rankings also relied on an extensive survey of WSJ readers whose input on overall experience, ease of use, security, restaurants, shopping, airline clubs, bathroom cleanliness, electric charging outlets and other categories was graded and scored.

Airports world-wide have come to realize that offering good food turns out to be more profitable than peddling $10 hot dogs off rolling warmers. Having clean, modern facilities matters, and airports across the country have upped their game significantly. Airports say their own research shows what often matters most isn’t dramatic public art or even comfortable seating or power plugs. It’s clean bathrooms.

Source: The Best of the Biggest U.S. Airports, WSJ, Nov 14, 2018

The article generated plenty of comments from the paper’s readers. Many suggested that the best airports are small airports in second-tier cities and that none of the large airports are the top airports. Some readers noted that though this list shows the best of the large airports, in reality none of them are the best on a global scale since all of them are junk based on many factors. They have a point. For example, none of the US airports can even be compared to world-class airports like Singapore’s Changi or Dubai’s airport.

Apparently American airports’ research shows that the most important thing in an airport is clean bathrooms as noted in the excerpt above. Sure. Most passengers go to airports to spend most of their free time in bathrooms …..No wonder most large airports in the country are so awful in terms of passenger facilities and service except of course clean bathrooms because all that matters for passengers is the pathetic bathroom where most people spend like most of their time waiting for their flights. No wonder US airports can’t appear in any of the world airport rankings.

Comparing Dividend Yields Across Regions

Investors looking for income from equities have to look far beyond the US shores for higher yields. This is because dividend yields in the US declined many decades and continue to remain low relative to other developed markets. For example, the current dividend yield on the S&P 500 is 1.90%. But the dividend yields in Europe and Asia are much as higher as shown in the chart below:

Click to enlarge

Note: The yields shown above are as of July 31, 2018

Source:Three reasons to diversify in the hunt for equity income, Schroders

it should be noted that dividend withholding taxes are high in some countries and will reduce the net yield received by investors. For example, the Swiss dividend withholding tax rate for non-residents is 35%.

Despite the taxes and other factors such as foreign currency exchange risk it is important for income-seeking investors to diversify among different regions.

Eight Economic Facts About Kazakhstan

Kazakhstan is one the former Soviet republics located in Central Asia. It is the largest landlocked country in the world and the ninth largest in the world in terms of size. In the investment world, the market is considered as a Frontier Market.

The following are eight economic facts about Kazakhstan:

  1. The country is strategically located on the corridor linking China with Russia and Europe making it the “Buckle” of China’s Belt and Road Initiative (BRI).
  2. Kazakhstan leads Central Asia in economic growth and Foreign Direct Investment (FDI).
  3. It joined the World Trade Organization(WTO) in 2015.
  4. About 9,000 foreign firms operate in the country.
  5. The Corporate tax rate is 20% and the personal income tax rate is 10% for residents.
  6. Investment in transportation infrastructure has been huge. The 2,700 km Kazakh part of the highway network connecting Western China and Europe has been completed and so is the rail network connecting China with Europe.
  7. Kazakhstan ranks 28th among 190 countries in The World Bank Ease of Doing Business Index.
  8. In 2017, the top five major export markets were Italy, China, The Netherlands, Russia and Switzerland.

Source: Why Invest in Kazakhstan? ad in BusinessWeek

Astana City View