Five Andean Stocks To Consider

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When investors think of Latin American countries for investment they usually tend to gravitate towards Brazil and Mexico, two of the largest economies in the region. However Brazilian equities have been average to poor performers in the past few years and the Mexican economy is highly related to the performance of the U.S. economy.

Instead of focusing mainly on Brazil and Mexico, investors can consider some of the other countries in the region. Particularly they can expand their horizon to opportunities in the Andean countries of Chile, Colombia and Peru collectively known as the “Pumas”.

Some of the reasons to invest in “Pumas” are:

  1. The equity markets of these countries have performed well in the past few years. The table below shows their returns from 2006 to 2012:
  2. Puma ReturnsIn 2013 Chile was up by down by 14% and Colombia was down by 8%.
  3. The pumas have implemented private pension fund systems which offer a growing and captive local investor base.
  4. Andean markets are well diversified. For example, the benchmark indices of IPSA, COLCAP and IGBVL are diversified across the major sectors. In comparison, the Mexican IPC does not have representation from the utility and energy sectors.
  5. The three markets provide plenty of liquidity with over 600 companies listed on the exchanges.
  6. Political stability which has been an issue in the past is no longer a problem in these countries. For example, the FARC rebels and Colombia have agreed to a ceasefire and the country is slowly getting back to normality. Similarly Chile re-elected its leader recently and is largely a stable country for many years now.
  7. The average dividend yields in the Puma firms are attractive. For example, Chile is one of the few countries where companies are required by law to distribute a portion of their profits as dividends to their shareholders.

Source:Latin America Equity – Dispelling the Myths of the Andean Pumas, Pinebridge Investments

Five stocks from the three Andean countries are listed below for further research:

1.Company: Credicorp Ltd (BAP)
Current Dividend Yield: 1.31%
Sector: Banking
Country: Peru
Note: Credicorp is incorporated in Bermuda as a holding company.

2.Company: Ecopetrol SA (EC)
Current Dividend Yield: 14.49%
Sector: Oil
Country: Colombia

3.Company: Empresa Nacional de Electricidad SA (EOC)
Current Dividend Yield: 2.12%
Sector:Electric Utilities
Country: Chile

4.Company: Bancolombia SA (CIB)
Current Dividend Yield: 3.29%
Sector: Banking
Country: Colombia

5.Company: Banco de Chile (BCH)
Current Dividend Yield: 5.56%
Sector:Banking
Country: Chile

Note: Dividend yields noted above are as of Jan 16, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long BCH

Knowledge is Power: Dividends, Top Energy Firms, Coal Edition

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Reasons Target to Close Canadian Operations (Euromonitor International)

The importance of dividends (Invesco UK)

2020 Vision: Yield Scarcity and the Case for Dividends (Franklin Templeton Investments)

Causes of Wage Stagnation (EPI)

Oil price slump cleaves divisions between EM winners and losers (beyond brics)

2014 Top 250 Energy Companies (Platts)

Does Behavioral Investing Make Sense Anymore? (Alliance Bernstein Blog)

China’s long farewell to coal (Deutsche Welle)

Punta Cana Beach

Punta Cana Beach, Dominican Republic

Not All Chemical Companies Benefit From Lower Oil Prices

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Oil prices have plunged dramatically since mid-2014.Brent closed at $48.40 today on the NYMEX. This is a far cry from the over $100 a barrel that seemed to be the floor up until a few months ago.

Conventional wisdom holds that lower crude oil prices should benefit chemical firms as they use oil as one of the key ingredients in making the various chemicals and related-products. However not all chemical firms benefit from lower oil prices. This is because some of them use natural gas as opposed to oil for their feedstocks. Hence price of natural gas affects them more than price of oil.

From an October, 2014 article in ICIS, the industry publication:

The collapse in crude oil prices will cause pain for petrochemical companies. One might think that lower oil prices would result in lower feedstock costs, boosting margins. This dynamic may work to some extent, but is far outweighed by the impact on prices.

Chemical prices move with crude oil, and the impact on margins tends to be more favourable on the upside versus the downside. Why? Because when oil prices are moving higher, producers dictate the conversation on pricing. Conversely, on the downside, the pricing discussions are dominated by buyers.

The article is worth a read in its entirety. Here is another interesting part from the article:

Chemical companies with significant assets in the US have been getting a double benefit – not only do they use mainly low natural gas based feedstocks, but also reap the benefit of high chemical prices which are based on crude oil.

Although around 80% of US cracker feedstocks are derived from natural gas liquids (NGLs) – ethane (58%) and propane and butane (22%) based on 2013 statistics from ICIS – US chemical prices follow crude oil.

Source: Commentary: Oil puts chemicals over a barrel, October 17, 2014, ICIS

Asian and European chemical firms should benefit from cheaper oil since they mostly use oil-based naphtha for feedstock. Hence compared they are a better bet than American chemical stocks.

Among European chemical majors, BASF, the world’s largest chemical maker can be avoided since lower oil prices is actually hurting the firm due to its direct exposure to oil through its Wintershall unit. Since BASF derives about 30% of revenue from this unit low oil prices negatively impacts BASF.

Ten European chemical stocks are listed below for consideration:

1.Company:Air Liquide (AIQUY)
Current Dividend Yield: 2.65%
Country: France

2.Company:Arkema (ARKAY)
Current Dividend Yield: 3.66%
Country: France

3.Company: Solvay(SVYZY)
Current Dividend Yield:3.29%
Country: Belgium

4.Company: Akzo Nobel(AKZOY)
Current Dividend Yield: 3.38%
Country: The Netherlands

5.Company:Syngenta AG (SYT)
Current Dividend Yield: 3.50%
Country: Switzerland

6.Company: Linde AG (LNEGY)
Current Dividend Yield: 2.25%
Country: Germany

7.Company: BayerAG (BAYRY)
Current Dividend Yield: 2.09%
Country: Germany

8.Company: K+S AG (KPLUY)
Current Dividend Yield: 1.20%
Country: Germany

9.Company: Yara Internationa (YARIY)
Current Dividend Yield: 3.26%
Country: Norway

10.Company: Royal DSM(RDSMY)
Current Dividend Yield: 4.10%
Country: The Netherlands

Note: Dividend yields noted above are as of Jan 15, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long AKZOY

A Note on the “Big Four” in Four Countries

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In many countries across the world banking industry is dominated by a handful of banks. These banks are the largest in those countries based on factors like market capitalization, market share of deposits, home mortgages, etc. In a few countries just four banks dominate the industry. These banks are called as the “Big Four”. According to Wikipedia:

Big Four is the colloquial name for the four main banks in several countries, where the banking industry is dominated by just four institutions and where the phrase has gained currency.

In this post lets take a quick look at these four banks in four countries.

1) Australia/New Zealand: 

The big four hold most of the home mortgages in these two countries. These banks are: Australia and New Zealand Banking Group(ANZBY), Commonwealth Bank(CMWAY), National Australia Bank(NABZY) and Westpac (WBK). All four are excellent dividend payers. Their current dividend yields are 5.96%, 5.16%, 6.34% and 5.88% respectively.

2) China:

Similar to other BRIC countries, state-owned banks are a major part of the Chinese banking industry. The big four banks in China are Bank of China (BACHY), China Construction Bank (CICHY), Industrial and Commercial Bank of China(IDCBY) and Agricultural Bank of China (ACGBY).

3) Sweden:

Swedish banks are somewhat insulated from the issues affecting the Euro zone since Sweden has its own currency. Banks in Sweden recovered strongly from the financial crisis and are in a much better shape than their European peers. In fact all big four banks of Sweden raised their dividend payments last year. The Swedish big four are:Nordea Bank AB(NRBAY), Skandinaviska Enskilda Banken AB(SKVKY), Svenska Handelsbanken AB(SVNLY) and Swedbank AB(SWDBY).

4) UK:

The four major banks in the UK are Barclays(BCS), HSBC (HBC), Lloyds Banking Group (LYG) and The Royal Bank of Scotland Group (RBS). Standard Chartered(SCBFF) is a major player in the international market especially in Asia and Africa.

RBS is majority-owned by the state.From an investment standpoint Barclays and HSBC are better bets now than others.

Note: Dividend yields noted above are as of Jan 14, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long LYG, SWDBY, NABZY

Five Mistakes to Avoid in Emerging Markets Investing

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Investing in emerging market equities is fraught with risks.Unlike the developed world developing countries are prone to suffer from a myriad of risks including currency exchange risk, political risk, liquidity risk, transparency risk, etc.

Investors looking to gain exposure to emerging markets should be aware of these risks and take extra precaution before jumping in. Five mistakes that investors can avoid when investing in emerging stocks are listed below:

  1. Failing to take into account political risks.
  2. Selecting wrong country for dividend stocks.
  3. Selecting the wrong sector for investment in a specific country.
  4. Assuming economic growth and higher equity prices are related.
  5. Assuming investments in developed world’s multinationals is enough to profit from the growth in emerging markets.

For example, Brazilian equities have been in doldrums for the past few years under President Dilma Rousseff’s administration and recently she won the election again for a second term. So investors have to brace themselves for a rough ride with Brazilian stocks.

Certain emerging countries are not great for dividend stocks.Countries like India, South Korea can be avoided when hunting for these type of stocks while countries like Chile, Mexico, Taiwan, Malaysia, etc. offer many excellent dividend opportunities.

Ten stocks from emerging markets are listed below with their current dividends for potential investment opportunities:

1.Company: Standard Bank Group Limited (SGBLY)
Current Dividend Yield: 4.16%
Sector: Banking
Country: South Africa

2.Company:Banco Santander- Chile (BSAC)
Current Dividend Yield: 4.96%
Sector: Banking
Country: Chile

3.Company:Empresa Nacional de Electricidad SA (EOC)
Current Dividend Yield: 2.07%
Sector:Electric Utilities
Country: Chile

4.Company:Fomento Economico Mexicano SAB de CV (FMX)
Current Dividend Yield: 3.58%
Sector:Beverages
Country:Mexico

5.Company: Malayan Banking Berhad (MLYBY)
Current Dividend Yield: 7.06%
Sector: Banking
Country:Malaysia

6.Company: Lukoil (LUKOY)
Current Dividend Yield: 6.51%
Sector: Oil & Gas – Integrated
Country:Russia

7.Company: PetroChina Co Ltd (PTR)
Current Dividend Yield: 4.66%
Sector: Oil & Gas – Integrated
Country: China

8.Company:Taiwan Semiconductor Manufacturing Co Ltd (TSM)
Current Dividend Yield: 2.36%
Sector: Semiconductors & Semiconductor Equipment
Country:Taiwan

9.Company:Philippine Long Distance Telephone Co (PHI)
Current Dividend Yield: 4.47%
Sector: Telecom
Country: Philippines

10.Company: Nedbank Group Limited (NDBKY)
Current Dividend Yield: 4.20%
Sector: Banking
Country: South Africa

Note: Dividend yields noted above are as of Jan 9, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long BSAC