India,China stock market bubbles !! Time for a (bubble) bath?

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While the US markets are in the dumps for many months now due to the sub-prime mess, the stock markets of China and India are on fire. Last year the Shanghai market doubled and the index in the Bombay Stock Exchange increased by over 45%.

Before you jump with both feet into these red hot markets, read this post first.

The markets in these two countries are a bubble waiting to burst at any time. Both countries are experiencing heavy Foreign Direct Investments (FDI) which is fueling all kinds of hype – ranging from infrastructure construction to real estate investments. The P/E ratios of stocks in these countries are now multiple times that of the developed markets. While their economies have had awesome growth over the past few years, it may not continue to grow at the same rate in the future.

A key factor that is often overlooked when evaluating emerging market stocks is the role of the government in those countries – especially the role the governments play in creating bubbles in the market. In China and India, the governments participate in the bubble development process by listing the shares the government held companies in the stock market and reaping huge profits. You may ask how do they do this?

This is how they create these bubble companies. The governments own the majority of the shares in a state-owned company and they list the company with only a portion of the shares floated among the public investors. For example – the government may keep 98% of the shares in a company and flat the remaining 2% in the markets. Since only 2% of the shares are available these stocks go up to sky-high levels due to limited liquidity in the market and heavy demand. Lets look at an example of this scenario in China and India.

1. India – National Mineral Development Corporation – NMDC Ltd.
This is a state-owned miner. The government of India listed this company by floating only 1.62% of the available shares. The remaining 98.38% is still owned by the state. With only 1.62% of the shares in float among the retail investors, institutional and foreign investors the stock was manipulators dream. Less than 5000 shares were traded daily and the stock went up almost 2000 points every day for almost a month. Now this company is the 19th largest listed company in India. This is a classic case of how to create a bubble stock.

2. China – PetroChina
This is another state-owned outfit in the communist country of China. When the Chinese government listed this on the Shanghai Exchange back in November last year, the shares doubled on the listing day and the company become the first ever “Trillion” $ company in thw whole world easily passing even Exxon-Mobil.

The government listed this as an A-share class. This means only the local people can invest in them.Foreigners are not allowed to own them. They floated only 2.5% of the total shares in the company. The remaining 97.5% are owned by the government. Since so little shares were available for the locals there was huge imbalance in supply and demand. Locals went crazy for this stock pushing the price higher almost immediately when it got listed.

Now a Chinese source says that the government is waiting to unload billions of Petro China’s shares at the right price and stands to make billions. Thankfully it will unloaded onto the locals and not us.

Incidentally the last time I heard about a “trillion” $ company in the making was during the dot com bubble days. At that time, a CEO of a dot con company called Infospace (INSP) came on CNBC and made a comment to the effect that his company would be the first Trillion $ company in the world. We know what happened to the dot com bubble and this INSP went to a few cents a share. Nobody knows what happened to the CEO clown who made the “bold” statement
The latest edition of Forbes Richest persons on this earth did not list this clown as the one and only “Trillionaire”.:-)

The two examples posted above are just samples of state-owned listed companies. There are many more such companies that are now some of the hottest stocks in these countries.

Comments on this article are welcome.

Canada – Cold Country, Warm stocks – Part II

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Part II:

There are many ways to invest in Canada. Some of them are discussed below:
1. ETFs
2. Income Trusts
3. Stocks

1. ETFs:
This is the easiest and quickest way to get some exposure to Canadian equities. iShares’ Canada ETF – EWC is the best one in the market. It has assets of over $2.0B and has performed consistently over the years.Last year, it returned over 25% due to the bull run in the energy and commodity sectors. With this ETF you get diversification of Canadian stocks easily. To build a portfolio of stocks will take time and lots of $.The fund has is heavy in commodities (energy,materials) & financials. this makes sense since Canada is commodity based country.

Some of the commodities that are abundant in Canada are uranium, Potash (used in fertilizer), diamond deposits, oil (in the form of tar sands) etc.

Note:The tar sands of Alberta province release oil when pressed under heavy pressure. After a Canadian scientist invented this process, all of a sudden Canada turned into a big oil producer.

In fact the government of Alberta swims in oil money so much that even sends out checks to folks in the province once in a while.

The best part about this ETF is that it has the highest allocation (6.05%) for Royal Bank of Canada – RY. This is one of the best performing bank stock with great dividends too. RY is the largest and the most profitable all the banks in Canada.

2. Energy Trusts:
If you are looking for a higher than average income, then Canadian Royalty income trusts maybe the answer. These trusts are very popular among investors. They are able pay dividends of 10% and up because of favorable tax treatments from the government. These trusts basically own a piece of land and all the revenue coming from oil pumped from that land gets distributed to shareholders. When they run out of oil or land or both, trust usually try to acquire new land for growth.

A few of these trusts are listed below:

1. HARVEST ENERGY TRUST – HTE with 17% Yield
2. ADVANTAGE ENERGY FD – AAB with 15.8% yield
3. FORDING CDN COAL – FDG with 5.7%
4. PENGROWTH EGY UTS – PGH with 15.4%

Caution: Though they pay high dividends and some capital appreciation, there are many risks involved with investing in these trusts. Firstly a small fall in share price of a few $s can easily wipe out a years worth of dividends received. Also sometimes trusts may not be able to find land. Sometimes trusts may not have enough profit to distribute to shareholders.

3.Stocks:
There are many high quality Canadian stocks available in the US.The best ones are the producers of Potash, energy related companies, rail transportation and banks.

Importance of Rail Transportation: All the commodities such as lumber,wheat,crude oil etc. have to shipped to different parts of Canada and down south to US and beyond.Most of this freight is transported by two rail companies. They are the Canadian Pacific – CP and
Canadian National – CNI. These two are strong performers although in the past year or so CP has done a lot better than CNI.

For more Canadian Stock listings visit:
https://www.topforeignstocks.com/5.htm

For Canadian Stocks that have grown over 200%,300%, even 490% in the past 5 years
please visit:
https://www.topforeignstocks.com/18.htm

Happy hunting of Canadian Stocks !!!! And don’t forget to write a comment in my blog if you find this information useful.:-)

Canada – Cold Country, Warm stocks – Part I

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Canada is often overlooked by many US investors it is so close to us and is not considered a foreign country. However there are decent investment opportunities in Canada.

Being close to us, Canada has the most number of stocks listed in the US markets in the foreign country stocks category. If you are looking for some exposure to Canada, there are plenty of stocks to invest in. Some of the consistent performers over many years are listed below:

1. Canadian Pacific – CP
2. Agrium – AGU
3. Manulife Financial – MFC
4. Imperial Oil – IMO
5. Petro-Canada – PCZ

Part II on Canadian stocks – which will be more detailed and long, will be posted tomorrow.:-)Thank you for your patience !!

Malaysia – Palm, Rubber and Tourism & Foreign capital ….

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Malaysia is one of the hot emerging market countries now.After the Asian financial crisis a few years, Malaysian government has implemented many market-friendly policies while at the same protecting the domestic currency and stock markets from adverse effects of foreign direct investment.The infrastructure in Malaysia is very good when compared to other countries like India, China etc. The capital city of Kuala Lumpur (KL) has a neat Skytrain system that connects pretty much the whole city. The photo below shows one such train running thru downtown KL.

The people in Malaysia are conservative and save a lot of their income. The country has Malay, Chinese and Indian populations with the Malay and the Chinese forming the majority. Though the country is very close to Singapore, it is still a developing country while the city state of Singapore is a developed country. Malaysia is trying hard to become a developed nation.

Only the western part of Malaysia is well developed. The eastern part of the country is still very underdeveloped. The city of KL attracts huge capital inflows for may projects such as apartments, hotels, tourist related attractions etc. The city seems to expand constantly.

There is a major toll expressway that runs all the way from the north to the South connecting Singapore. This highway is well maintained and has made land travel within Malaysia much easier and faster.

There are a couple of options to invest in Malaysia:

One is the iShares Malaysia ETF – EWM.
This fund has grown nicely over the years and has now an assets size of over $1.0B.

Another option is to pick up a few of the Malaysian ADRs listed in the OTC market.

The following are the Malaysian ADRs listed in the US markets:

1. Genting – Travel and leisure – GEBHY.pk
2. Malayan Banking – Banks – MLYBY.pk
3. Resorts World – Part of Genting – RSWSY.pk
4. Tenaga Nasional – TNABY.pk

There a few well-run companies in that list such as the Genting and Resorts World. Both run the Genting resort and the many hotels within it. This hillstation tourist spot attracts millions of tourists each year including many of Chinese from Mainland China visiting Malaysia for the first time.
The picture below shows the cable run that runs from the base of the mountain to the resort.
This cable car seems to one of the fastest and longest in the world.


Some other companies available in the OTC are electric utility Tenega Nasional the banking group of Malayan Banking. In general Malaysia ADRs are very few to choose from.

Malaysia used to be a big producer of Rubber. Many years ago that changed. Now Palm Oil is the major commodity in Malaysia. Many of the old rubber plantations have been converted to grow Palm trees.

Malaysia has a few disadvantages as well.The country failed to launch and become a leader in the IT and other “knowledge” based industry due to many reasons. The spectacular “Petronas Towers” were actually built to launch an IT park where IT companies would set up shop and engage in all things IT. However that effort failed and now those towers are occupied by multinational corporations in addition to Petronas.

However Malaysia has succeeded in the electronics manufacturing space. All kinds of electronic items such as computer chips, watches etc. are now assembled in Malaysia. Malaysians are proud of this sector’s achievement.

For the foreseeable future, commodities such as Palm Oil, Rubber and tourism industry will remain the key engines of the Malaysian economy.

Why should you invest in foreign utility stocks?

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There are many reasons why you should invest a part of your portfolio in foreign utility stocks. Listed below are some of them:

1. Conservative growth – Generally utilities are considered to be a conservative investor’s best friend. They tend to growth slowly and steadily over time and provide high dividends. Unlike technology stocks or other high growth sectors, they do not grow exponentially in a short period of time.

2. Dividends – As mentioned above, utility stocks tend to have high dividend yields – most have a yield of above 3% and this dividend rate is increased year over year by many well-run utilities.
Since they do not have the need to reinvest the retained earnings to grow, many of these utilities pay their earnings as dividends to shareholders.

3.Government Assistance/Tax relief – Utilities get many forms of assistance from the governments of the countries they operate in. This can be in the form of tax breaks for investing in capital goods such as power plant equipments, pipelines etc. Recently governments are offering high financial incentives to those utilities that invest in carbon reducing technologies, green power plants, environment-friendly technologies such as wind energy etc.

There are a number of foreign utility stocks that trade in the NewYork Stock Exchange(NYSE) and the Over-The-Counter (OTC) exchanges. These range from electricity only producing utilities to multi-utilities that operate in the water, gas and electricity markets.

For a list of foreign utility stocks, visit:

Hi-Yield Portfolio(HYP)- Brazilian Utilities

Hi-Yield Portfolio(HYP)- European Utilities
Cheers!
-David