Australia’s Top Exports of Goods and Services 2016-17: Chart

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The top Australia exports are Iron ore, coal and natural gas in terms of goods. In the services space, the top sectors are education and tourism. Australia is one of the top destinations for Chinese tourists. In 2017, 1.3 million Chinese visited Australia spending about A$10.0 billion. Tourism dollars also give a boost to other sectors of the economy both directly and indirectly.

The chart below shows the top Australian goods and services exports for 2016-17:

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Source: Australia: Caught in the Middle of US-China Trade Tensions?,  Franklin Templeton Investments.

Stock Market Performance Under Democratic Socialism vs. Military Dictatorship: The Chilean Experience

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The stock market in Chile collapsed when socialist president Allende was elected back in the 1970s but soared when he was overthrown and military dictator Pinochet seized power.

Economic growth can be achieved either by the ballot or by the bullet. Or to put it another way democratic means of political system can drive economic growth. However in some countries democracy fails to deliver economic growth due to a variety of factors. In these countries, economic growth has been achieved when democracy was replaced by military rule. Though this is a controversial theory, it proved true in the South American country of Chile.

Salvador Allende was democratically elected as the President of Chile in 1970. However his socialist policies and anti-business sentiment did not go well with the business elite and overseas investors. As a result, the his government was overthrown in a bloody coup engineered by the US and military dictator Augusto Pinochet took power in 1973. According to a research paper by Daniele Girardi and Samuel Bowlesy, the Chilean stock market plunged by 22% in the first trading after Allende’s victory and stock prices continued to fall in the following days stabilizing after a decline of about 50% of the pre-election values.

When brutal dictator Pinochet took power in 1973, the trend reversed completely. In the first trading day after the coup, stock prices soared by nearly 80%. Stocks continue to move higher in the years that followed.

The chart below shows the performance of the benchmark Chilean index under Allende vs. Pinochet and earlier administrations:

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Source: Institution shocks and economic outcomes: Allende’selection, Pinochet’s coup and the Santiago stock market by Daniele Girardi (University of Massachusetts (Amherst)) and Samuel Bowlesy (Santa Fe Institute).

It should be noted that Chile’s economic and equity market growth during those turbulent years came at a heavy cost in terms of human lives. Thousands of people were killed or disappeared by Pinochet in order to maintain power and implement his radical policies. Though the concept of growth at all costs worked in Chile it may not work in all countries. So the idea that if democracy does not bring prosperity simply replace it with military dictatorship is utterly wrong to say the least.

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Why Own Foreign Stocks: Infographic

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Investing in foreign stocks has many advantages. Despite living in a globalized world, many Americans have low exposure to foreign stocks. Going overseas can not only help diversify one’s portfolio but also offers the potential to boost returns. The following small infographic lists a few reasons to invest in foreign stocks:

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Source:In a World of Opportunity, Why Limit Your Choice?, Oppenheimer Funds

South Korea Ranks First in Dividend Growth 2018-2019

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South Korea used to be one of the unattractive markets for dividend investors due to the low payouts by Korean firms. I have written about the low payouts in a few article before like here and here. In those articles I had suggested that income investors can avoid Korea. However decades of low payouts may be coming to an end as companies are paying out more of their earnings to shareholders due to tax and political reforms. As a result, Korea has become the top country in dividend growth rate for 2018-19 as shown in the chart below:

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Source: South Korea Courts Investors with Unbelievable Payouts by Frank Holmes, U.S. Global Investors

From the above article:

South Korea is very attractive right now, with stocks trading at cheap valuation multiples relative to those in neighboring countries. Gross domestic product (GDP) growth remains robust, rising 2.8 percent in the first quarter.

The Korean market has a reputation for having a low payout ratio, despite many of its multinationals being flush with cash, but that looks set to change. Pressured by the government to do more to attract and keep foreign investors, the countries’ top 10 firms paid out a record 7 trillion won, or $6.46 billion, to offshore investors last year. Samsung Group ranked first, its payouts rising a massive 45.6 from the previous year to total 3.91 trillion won.

According to CLSA estimates, based on FactSet data, Korea tops the list for dividend growth this year and next. The investment bank is looking for a 20 percent compound annual growth rate (CAGR), which would be a huge improvement over other markets around the globe.

Related ETF:

  • iShares MSCI South Korea Capped ETF (EWY)

Disclosure: No Positions

Comparing China Savings Rate vs. Select Other Countries

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The savings rate in China is very high compared to other countries. The Chinese economy is manufacturing and economy-based while many developed countries’ economies are consumption based. This is one reason why savings rate tend to be low in developed countries.

The following chart shows savings rate in China vs. other countries:

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Source: Five Things to Know about US-China Trade, Manning & Napier

China has the highest savings rate while the US has the lowest rate. While there are a multitude of reasons for the high savings rate in China, two factors that make a difference are cultural and financial  factors. For example, in China children are expected to take care of their parents when they retire. As a result young Chinese not only have to save for themselves but also for their parents. In the US, personal freedom and independence is highly important and parents do not expect their children to support them financially at old age.

Another point to remember is that the social safety is weak or non-existent in China especially in regards to pensions. Hence Chinese are indirectly nudged to save higher portion of their earnings for use in retirement. In the US, social security ensures retirees have some of income during retired life.