The Dividend Yields of the world’s largest economies is shown in the chart below:
Click to enlarge
Source:Dividends And Buybacks: The Last Hurrah?, Global Finance
Among the developed markets, Australia offers the highest dividend yield at 4.18% followed by Norway and the UK.
The dividend yields of the developed markets are shown in the following chart:
Click to enlarge
Note: Data shown above is as of December end, 017
Source: Singapore Loves Dividends, Australia Most Generous, Bloomberg
Oil prices have soared in the past year gaining around 40%. With the summer travel season coming soon drivers in the US can be expected to drive higher demand for gasoline in coming months. Despite the dramatic and surprising boom in oil prices energy and related sector stocks have not kept up up until now. According to Brad Sorensen at Charles Schwab, investors willing to take higher risks can add positions at current levels for higher potential returns but the sector is volatile and hence investors need to be aware of the risks involved.
From the article:
The more things change …
Oil prices have staged a solid rally over the past year, with WTI crude moving from around $50/barrel a year ago to close to $70/barrel currently—a roughly 40% gain. However, as you can see below, the energy sector hadn’t kept up with the commodity gains until a very recent move higher.
The energy sector hasn’t kept up with crude prices.
Past performance is no guarantee of future results
Now that the sector has started to move higher, the potential for the gap to close has excited much of Wall Street, with more bullish calls coming out for both the sector and for oil. The gap, however, could be closed by oil coming down to meet the energy sector line, a possibility that seems to be ignored by much of the current analysis, likely largely due to the bullish view on the future of oil prices. Two other charts appear to indicate that in the past, gaps in traditional relationships have been closed more by the commodity price moving to the stock-related price than the other way around. History is no guarantee of future performance, but it does leave open the possibility of a different outcome.
Source: Schwab Sector Views: Drilling Down on Energy, Schwab
From another article at AllianceBernstein on the same topic:
Energy Stocks Have Outperformed Challenged Markets
That might seem counterintuitive, given that energy is often seen as a volatile sector. But in fact, over the past 28 years, energy stocks outperformed challenged markets several times (Display, left): in 1990 and 1994; after the tech bubble burst from 2000 to 2002; and during the global financial crisis in 2008. On average, the energy sector outperformed the S&P 500 by 2.9% in negative-return years and by 12.7% in low-return years (with an S&P 500 price return below 10%), since 1990 (Display, right).
This year, energy stocks have advanced by 2%, outperforming the S&P 500. But they’ve lagged gains in West Texas Intermediate (WTI) crude oil, which has been up 13% (Display). We believe that this disconnect offers an investment opportunity, particularly among integrated oil companies. Within the sector, look for companies with attractive valuations and dividends that rival consumer staples companies, supported by improving fundamentals.
Source: Energy Stocks: A Surprising Defensive Play?, AllianceBernstein
From an investment perspective, energy stocks are not as attractive as they were a few months ago due to the recent run-up. However geo-political issues and demand can lead to higher oil prices in the coming months potentially boosting the stock prices of this sector and related sectors.
In addition to oil majors and oil exploration firms, investors may also want to consider the oil field services and equipment sector firms such as Schlumberger NV (SLB), Halliburton Company (HAL), etc.
Related ETFs:
Disclosure: No Positions
The Zimbabwe Stock Market fell 98% in one week and was shut down during the hyperinflation years of former dictator Mugabe. This is a shocking fact that some investors may not know.
Below is a short excerpt from an article at Research Affiliates:
During the three months August–October 2008, the Zimbabwean dollar plunged from 10 to 1000 per the US dollar, a 100-fold currency collapse. At first, the Zimbabwean stock market was unfazed, rising 500-fold in just eight weeks, while the currency fell 10-fold. Thus, in US dollar terms, the stock market rose an astounding 50-fold over those eight weeks. In the next two weeks, however, the stock market toppled 85% and the currency tumbled another 3-fold. Adjusted for the plummeting Zimbabwean currency, the nation’s stock market plunged 95% in two weeks.
Then, both the currency and the stock market ratcheted up volatility another order of magnitude. When the hyperinflation went into overdrive, with purchasing power falling 90% in less than a week, the stock market fell 98% (99.8%, in US dollar terms) in that same week. The stock market in Zimbabwe then ceased to exist.
Suppose we had the clairvoyance to know the market was going to fall 99% in US dollar terms over that three-month period in 2008. And suppose we could have sold the Zimbabwean market short. The strategy would seem to be a no-lose proposition. But not so fast. Even with the prescience of knowing the market was going to zero in three months, by selling short we would have lost 50 times our money, with high odds of bankruptcy, even though we were eventually proven correct!
Whereas a bubble is not as hard to identify in real time as is commonly perceived, transforming a bubble into profit, even for investors who correctly discern it, is a tremendous challenge because late-stage bubbles can take valuations into the stratosphere.
Source: Yes. It’s a Bubble. So What?, Research Affiliates
President Trump recently pulled the US out of the Iran deal bringing fresh confrontation with the middle east country. Many European countries against this unilateral action. However Trump has pulled off the deal simply ignoring the Europeans, most of whom are allies. Some political pundits also note that US image has also been burnished with this action as other countries now realize America no longer keeps its words.
The latest edition of Der Spiegel has the following cover figuratively depicting the actions of the US:
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Source: Trump and Iran – Time for Europe to Join the Resistance, Der Spiegel
Interested readers may want to read the entire article linked above.
Labor costs in the manufacturing sector is cheaper in Mexico than other countries especially China. Major US firms have significant operations in the country due to the geographical proximity to the US and abundant and well-experienced workforce. I have written about the cost competitiveness of the Mexican labor market in the past before which you can see here and here and here. In the automotive industry, Mexican labor rate was $3.29/hr compared to $5.19/hr in China according to an article in The Wall Street Journal last year.
Manufacturing labor costs used to be cheaper in China before. That is not the case anymore as wages have continued to rise. For instance, Chinese labor costs were cheaper than Mexico up until 2009. Since then while Mexican labor rate has stagnated or slightly went down, China’s rates have consistently increased every year. The gap in rates between these two countries has become large with the average labor rate in Mexico remaining under $2/hr in 2017 relative to nearly $5/hr in China as shown in the chart below:
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Source: Further Reforms Could Lead Latin American Economies to Become Bigger Growth Players, Franklin Templeton Investments
Political and economic reforms may get a boost with a general election coming up in Mexico in July this year. So from an investment standpoint, investors may want to keep an eye on Mexican stocks and look for potential opportunities. In general, investors need to focus more on Mexican equity market than China.
Update(12/14/20):
Monthly wages for Mexico Maquila Workers since 2007:
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Source: Labor Lawyer Takes On Mexico’s Exporters, Wins Higher Wages, WSJ
Update (12/14/20):
1.Average Manufacturing Wages – US vs. Canada vs. Mexico:
Source: Mexican Lawmakers Approve Pro-Labor Changes, WSJ.com, April 11, 2019
2. In 2018 IHS Markit estimates the average automotive manufacturing wage in Mexico was roughly US$4.15 (80 pesos) per hour.
Source: IHS Markit
3.”When looking at China vs. Mexico manufacturing, labor rates in Mexico are now, in many cases, lower than China. In constant dollar terms, hourly manufacturing wages are lower than those in China. Mexico also offers much steadier wages, making it easier for companies to forecast manufacturing costs. As of 2019, the fully burdened direct laborer wage rate in Mexico is about $3.95 per hour vs. $4.50 per hour in China.
Foreign exchange rates also favor Mexico vs. China, being that the Peso has steadily declined against the U.S. Dollar over the past 30 years. Meanwhile, the Chinese Yuan has mostly been pegged to the U.S. Dollar. In fact, the devaluation of the Peso vs. the U.S. Dollar has reduced the effective labor rate inflation to about 3% per year. ”
Source: NAPSintl.com
4.Labor Costs-Mexico vs China:
Source: TECMA
5.Mexico vs. China-Direct Labor Hourly Wage Chart:
Source: TACNA
6.China vs. Mexico Wages – Chart:
Source: Supply Chain Digest
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