Unemployment Benefits Across OECD Countries: Chart

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Unemployment benefits paid out to unemployed workers vary across OECD countries. Generally countries with socialist form of governments pay generous benefits to the unemployed in order to ensure they do not become destitute and are able to maintain their standard of living. However in order to be afford to liberal benefits these countries tax their citizens heavily in the form of social insurance, income tax, value-added tax(VAT), etc.

Unemployment benefits paid out to households across OECD countries based are shown in the following graphic:

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Unemployment benefits across OECD Countries

Source: OECD

Denmark tops the ranking by paying 94% of household income that a family earned when in work. Canada also pays generously for a household meeting the criteria shown in the chart above.

Of the OECD countries, the US ranks the fourth lowest in terms of unemployment benefit payments. Only South Korea, Romania and Greece are worse than the US. The US rate is lower than the OECD median rate of 70%.  One advantage of keeping unemployment benefits low and strict is that it forces the unemployed to find jobs sooner leading to a more productive and vibrant economy. Liberal unemployment benefits can sometimes be abused by some people. For instance, in some small towns in the UK a couple with two children get paid more in unemployment and social benefits than if they worked at a local restaurant or a grocery store. In such cases, they forgo the need to look for jobs and live a comfortable life as dependents of the state. Far from living a humble life with basic human needs, these people have things like the latest smartphones, flat-panel TVs, internet, family minivans, nice house, etc.

Private Health Insurance as a Percentage of Total Current Health Expenditures in OECD Countries

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The US spends the most on private health insurance of the total current health expenditures next only to South Africa. Compared to the OECD average rate of 6.3% the USA’s private health insurance rate is 35% – nearly six times more than the average. This is because unlike other countries such as France or Germany or the UK, healthcare in the US is an industry run by the private sector. As a results common worldwide traditions such as a government-run hospital in a town or a city does not exist in the country. The state runs hospitals exclusively for military veterans but only veterans are allowed to use those facilities.

The following chart shows the private health insurance as a % of total health expenditures in OECD countries:

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Private health Insurance in OECD Countries

Source: OECD via twitter

Emerging Stocks Are Cheaper Than Developed Stocks Now

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Emerging equity markets have outperformed developed markets so far this year. Major emerging markets such as Brazil, Russia, India, etc. are up by double digit percentage points. China is a laggard with the Shanghai Composite down by 13% as of Sept 9th.

Despite the strong returns year-to-date emerging markets are still attractive on a valuation basis according to an article by Alliance Bernstein. The firm is bullish on EM with the authors noting factors such as improving growth prospects, politics, etc. in addition to the valuation . According to the article emerging markets are cheaper by 24% relative to developed markets.

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emerging-markets-vs-developed-markets-pe-ratio

Source: Reemerging Markets: Investing in a Developing Recovery, AB Blog

From an investment angle, it is important to note that emerging markets are trading at a discount compared to developed markets because they are still emerging. Developed markets traditionally command a premium. But in the short-term lower valuations can lead to further gains.

While investing in developing stocks it is wise to avoid investing via an index fund. I discussed the reason for this in an earlier article.

Some of the companies investors can consider for research include: Bancolombia S.A. (CIB), Standard Bank Group Limited (SGBLY), HDFC Bank Limited (HDB), Ultrapar Participacoes SA (UGP), etc.

Disclosure: Long CIB

Facebook is Not an Emerging Markets Play

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Is Facebook an emerging markets play? Or put it another way is investing in Facebook a good way to gain exposure to emerging markets? In my view, Facebook is not an emerging markets play.

Here is an excerpt from a recent Bloomberg article on this topic:

With Facebook Inc.’s user growth in developing countries soaring, mutual funds focused on emerging economies are increasing investments in the Menlo Park, California-based company.

Six years ago, 60 per cent of the social platform’s 482 million monthly active users lived in the U.S., Canada and Europe and the rest were from elsewhere. Now two-thirds of its 1.7 billion users are from outside of the heart of the developing world. Researcher eMarketer estimates India will surpass the U.S. next year as the country with the most Facebook users. It also ranks India, Indonesia, Mexico and the Philippines as the top four countries to see the fastest Facebook user growth until 2020.

“From a monetization perspective it’s still dominantly the U.S. but from a long-term opportunity perspective it’s definitely emerging markets,” Charlie Wilson, the Santa Fe, New Mexico-based managing director at Thornburg Investment Management Inc., said in an interview in New York. He has steadily added Facebook shares to the Thornburg Developing World Fund, and they now account for 3 per cent of the US$1.2 billion portfolio.

Source:  Facebook Becomes Emerging-Markets Play as User Base Shifts, Bloomberg

Facebook(FB) has soared in the past few years with the stock price more than doubling in the past three years. Currently it has a market cap over $295 billion and the P/E ratio is over 60. As a tech growth-oriented social media company, Facebook does not pay a dividend. The primary source of earnings for the company is ads.

The problem with investing in tech companies such as Facebook for the long-term is that technology changes quickly and other competitors can emerge and make Facebook obsolete like mySpace, Geocities and others before. Just because Facebook is the king of social media today and users from developed and emerging markets are spending most of their online time there does not mean it will remain that way in the future. Moreover the site is spammed with too many ads already that some users are starting to reduce their daily Facebook time.

There are better ways to invest in emerging markets than by Facebook…

Disclosure: No positions