Infographic: Religion and Oil in Middle Eastern Countries

Posted by David Hunkar on 30 April 2016, 12:28 pm

Countries in the Middle East have deep sectarian religious divisions. Many people in the western world are not aware that Saudi Arabia for example is mostly Sunni Islam while most in Iran follow the Shia faith of Islam.These two groups do not get along very well. Hence Saudi Arabia opposes the spread of Iranian influence and vice versa. Iraq used to be run by its late dictator Saddam Hussain who was a Sunni. When he was toppled power was transferred to a group of Shias. So the Sunnis are unhappy with this arrangement and are fighting the state there.

Here is an infographic that shows the religious affiliations and oil wealth by country in the Middle East:

Click to enlarge

Source: Middle East: Sectarian Divisions and Oil Riches, Sputnik

Update (5/10/16):

Source: Saudia Arabia and Iran: The Cold War of Islam, Der Speigel

Avoid Major British Bank Stocks

Posted by David Hunkar on 28 April 2016, 3:21 am

Many developed European banks have been in a state of suspended animation for many years now. Though years have passed since the global financial crisis banks in Europe are still unable to recover and return to pre-crisis levels. British banks are no exception as well. Once known for their worldwide reach, excellent service and stable growth, major British bank today are a bad joke. British bank stocks have let down investors for years and years and there seems to be no light at the end of the tunnel. While banks in UK, followed their American peers in their operations, they failed to cleanup their balance sheets and raise capital after the crisis hit. A multitude of factors contributed to the slow and continued collapse of British banking including incompetent management, bloated branch numbers and employees, dithering by regulators, too late and high state intervention, inability to cut down expenses and earn profits, etc.

Here is an excerpt from an article on British bank stocks in FE Trustnet:

UK banks are cheap but not attractively-valued given the number of impending headwinds facing the sector, according to a number of star managers.

Neil Woodford, SVM UK Growth’s Margaret Lawson and Liontrust’s Stephen Bailey all warn against holding any of the larger incumbent banks due to a combination of precarious balance sheets, legacy issues and the current ultra-low interest rate environment.

The UK banking sector has had a torrid time post the financial crisis, with the FTSE 350 Banks index underperforming the FTSE 350 by 87.81 percentage points since the start of 2008 with a total loss of 46.85 per cent.

A lack of trust since the crisis combined with a series of misconduct-related fines appears to have taken its toll on the sector, with many investors believing the firms to be opaque, unreliable and vulnerable to further regulatory penalisation.

Seeing as we’re in the midst of an unusually long economic cycle, which has led to toppy valuations across many equities, some deep value investors have been won over by banks’ cheap valuations.

Expecting steady and consistent dividend payments from British banks are still a far from becoming a reality.

Fellow FE Alpha Manager Stephen Bailey says that, while the best opportunities in dividend growth is within the financials sector, this doesn’t include any of the incumbent banks as he deems them to be unattractive and un-investable.

For instance, he points out that RBS has recently had to postpone its first dividend payment, Barclays has halved its dividends, Lloyds has paid a dividend but it was generated from capital as opposed to earnings and HSBC is paying an unfeasibly high dividend despite balance sheet strains.

Source: Should you avoid this attractively-valued sector?, FE Trustnet, April 27, 2016

Of the major UK banks available for trading on the US market, Barclays (BCS) is down about 21% year-to-date and closed today at $10.20.Fellow peer Lloyds (LYG) is trading at just over $4 a share and is down 5% YTD. The Royal Bank of Scotland Group is royal only in its name. Trading at under $8 a share it is nearly 17% so far. Standard Chartered PLC (SCBFF) closed at $8.17 today and HSBC Holdings plc (HSBC) if off by about 14%. A few months ago HSBC started a drama with plans to move its headquarters some place else outside of London. After many months of rumors and drama eventually it decided to stay put. This is an example of how British banks have a tendency to focus on things that are stupid and useless.

Investors looking at European financials can avoid the large-cap British bank stocks for now.

Disclosure: Long LYG

Share of Foreign-born Population in OECD Countries

Posted by David Hunkar on 26 April 2016, 3:21 am

Foreign-born residents as a percentage of total population in OECD countries is shown in the chart below. Some countries such as Japan are facing severe labor shortage as the country is facing a shrinking and ageing population. Here is an excerpt from an OECD article:

Japan’s population peaked in 2010 at just over 128 million beginning what is projected to be a sustained and increasingly steep decline. Simultaneously, Japan’s population is ageing rapidly. From 1950 to 2015, the share of population age 65+ grew from just under 5% to over 25%. This is the highest such figure, worldwide. The population aged 80+ has risen even faster, from 0.4% in 1950 to 7.3% in 2013 (OECD average = 4.1%). Japan’s median age was 45.9 years in 2013, compared to a world average of 29 years and an OECD median age of 38.7 for the same year. Based on current projections, the Japanese government expects Japan’s population to decrease by 22-23% between 2010 and 2050, with the elderly (65+ years) accounting for 40% of the population.

Click to enlarge

Source: The case of the shrinking country: Japan’s demographic and policy challenges in 5 charts, OECD Insights

One solutions proposed in the article to solve Japan’s ageing population issue is immigration. Japan is one the few countries in the world with a very low population of immigrants. For the most part Japan is a homogeneous society. Some of the countries with low number of foreigners include Cuba, North Korea, Russia and most East European countries.

According to the OECD, foreign-born population was under 1.7% of the total population in Japan.

OECD countries with high foreign-born population include Luxembourg, Switzerland, Australia, etc. Countries like Australia, New Zealand and Canada have high foreign-born population due to liberal immigration policies.

Export and Import Partners of France

Posted by David Hunkar on 25 April 2016, 3:21 am

France is one of the largest economies in Europe and the world. With an estimated GDP of $2.6 Trillion in 2015 based on purchasing power parity the French economy is the 11th largest in the world.

France is a major player in international trade.Similar to other major developed European nations France trades with a diversified set of countries. The following chart shows the export and import partners of France based on 2014 data:

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The chart below shows the French export categories:

Source: Country in the Spotlight – France On a slippery path, ING

A few observations:

The top three countries for French exports were Germany (16.8% of total), U.S. (8.8%) and Belgium (8.6%). Since Germany is the largest economy in Europe it is not surprising that Germany is the top destination for French exports.

China accounts for only 5.5% of the total exports. This shows that France does not depend heavily on China from a trade perspective.

The top three source countries for French imports were Germany (19.2% of total), China (9.6%) and Belgium (9.0%).

Since Germany is the largest trade partner in terms of both exports and imports, the economies of these countries are highly dependent on each other.

The top three categories of French exports are road vehicles and transport equipment (20.3% of total), non-transport manufactured goods (18.4%), and chemicals (12.9%). Though pharmaceuticals account for only 6.3% of exports, it is projected to grow substantially in the next few years.

In terms of opportunities for investment, some of the major French firms trading on the US markets are Sanofi (SNY) in the pharma industry, Valeo SA (VLEEY) in the auto components business, oil giant TOTAL S.A. (TOT), Air Liquide (AIQUY ) in the chemicals sector, Danone (DANOY), etc. The full list of French ADRs can be found here.

Disclosure: No Positions