Economic Growth: Asia vs. Developed Countries

Posted by on

Asian economies continue to grow outpacing the economic growth of developed world making a compelling case for investing in Asia, according to a report by Nikko Asset Management. Asian countries excluding Japan have more than doubled their GDP as a percentage of the world total GDP from 9% in 1998 to more than 20% in 2013. China has been a major contributor to this tremendous growth. To put another way, these countries have enjoyed strong economic growth since the Asian Financial Crisis of the late 90s.

Click to enlarge

Share of World GDP for Select Countries and Regions

Source: The Asian Credit Market, Nikko Asset Management

While Asian economies grew, the U.S. economy’s share of the world GDP has continued to decline.

Five Asian growth stocks are listed below with their current dividend yields:

1.Company: HDFC Bank Ltd (HDB)
Current Dividend Yield: 0.60%
Sector: Banking
Country: India

2.Company: ICICI Bank Ltd(IBN)
Current Dividend Yield: 1.27%
Sector: Banking
Country: India

3.Company:Philippine Long Distance Telephone Co (PHI)
Current Dividend Yield: 4.38%
Sector: Telecom
Country: Philippines

4.Company:PT Telekomunikasi Indonesia Tbk (TLK)
Current Dividend Yield: 3.16%
Sector: Telecom
Country:Indonesia

5.Company:Taiwan Semiconductor Manufacturing Co Ltd (TSM)
Current Dividend Yield: 2.20%
Sector: Semiconductors & Semiconductor Equipment
Country:Taiwan

Note: Dividend yields noted above are as of Feb 2, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: No Positions

Morgan Stanley: European Stocks Are 40% Cheaper than U.S. Stocks

Posted by on

In the past few weeks I wrote a number of bullish articles on European equities. You can find some of them here, here, here and here. Over the weekend The Wall Street Journal published an interesting piece on the same topic. The entire article is worth a read. From the article:

The Case of Europe

One recent sign of hope for European investors was the calm response to the recent triumph of the left-wing Syriza party in Greece, which wants to ease the terms of the European bailout.

Greece’s Athex Composite Share Price Index plummeted 15% in the first three trading days following the vote. But investors elsewhere shrugged, bidding the Stoxx Europe 600—akin to the S&P 500—to a fresh seven-year high in the days that followed.

There are other reasons for optimism.

The euro already has tumbled 19% against the dollar since March, and many analysts believe it has further to fall, particularly when the Federal Reserve raises interest rates, which could happen this year. A weaker currency should make European exports more competitive and boost revenues in euro terms.

European firms also are able to borrow on favorable terms due to low interest rates, and plunging oil prices have reduced energy costs in countries that often rely on imported fossil fuels.

“Recently, we seem to be running out of reasons to dislike Europe, and for us that signals that it’s time to buy,” says John Manley, the New York-based chief equity strategist at Wells Fargo Asset Management , a unit of Wells Fargo that oversees about $490 billion.

European stocks also are less richly valued than U.S. equities, which have appreciated more sharply in the aftermath of the financial crisis. European stocks currently trade at nearly a 40% discount to U.S. equities, according to Morgan Stanley, based on the cyclically adjusted price/earnings ratio—a valuation measure popularized by Nobel Prize-winning economist Robert Shiller that uses average inflation-adjusted earnings over the prior 10 years. The long-term average discount is 10%.

Click to enlarge

Europe Stocks CAPE ratio

 

Morgan Stanley forecasts that European corporate earnings will outpace the U.S. for the first time since 2008, with 10% growth in 2015 compared with 6% to 8% in the U.S.

For many U.S. investors, the simplest and most convenient way to own European stocks is to buy a mutual fund or an exchange-traded fund offered by a major investment firm that focuses on Europe or includes a chunk of European stocks among its holdings.

Source: The Case for European Stocks Gets Stronger by Christopher Whittall, Jan 30, 2015, The Wall Street Journal

I agree with Chris on his view that an ETF or a mutual fund will be a better option to gain exposure to European equities. However for investors willing to build their own portfolio and monitor them for the long-term investment there are plenty of world-class companies that are based in Europe. European multinational companies are especially better since they gain from growth in both the domestic and emerging and other developed markets.

Investors can explore the following ten European multinationals from ten countries for potential investments:

1.Company: Nestle SA (NSRGY)
Current Dividend Yield: 3.16%
Sector: Food Products
Country: Switzerland

2.Company: Siemens AG (SIEGY)
Current Dividend Yield: 3.58%
Sector:Industrial Conglomerates
Country: Germany

3.Company: National Grid PLC (NGG)
Current Dividend Yield: 4.95%
Sector: Multi-Utilities
Country: UK

4.Company: Valeo SA (VLEEY)
Current Dividend Yield:  1.63%
Sector:Auto Components
Country: France

5.Company: Telefonica SA (TEF)
Current Dividend Yield: 5.87%
Sector: Telecom
Country:Spain

6.Company: Novo Nordisk A/S (NVO)
Current Dividend Yield: 1.86%
Sector: Pharmaceuticals
Country: Denmark

7.Company: Anheuser-Busch InBev SA/NV (BUD)
Current Dividend Yield: 2.65%
Sector: Beverages
Country: Belgium

8.Company: Swedbank AB (SWDBY)
Current Dividend Yield: 6.45%
Sector: Banking
Country: Sweden

9.Company:Telenor ASA (TELNY)
Current Dividend Yield: 5.43%
Sector: Telecom
Country: Norway

10.Company:Reed Elsevier NV (ENL)
Current Dividend Yield: 2.90%
Sector: Media
Country: The Netherlands

Note: Dividend yields noted above are as of Jan 30, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long SWDBY

Knowledge is Power: Italy, Canadian Banks, Oil Services Sector Edition

Posted by on

Storm hits Canadian banks: RBC, BMO, TD downgraded as sector faces worst start in 25 years (Financial Post). Also checkout Canadian Bank Stocks Post Worst Start in 25 Years (Bloomberg)

Hugh Young: we can hardly find any value in India (Citywire, UK)

Guest post: can India repeat China’s ascent? (FT beyondbrics)

Too many choices, high costs and bureaucracy: British expats grade American healthcare system ‘a pain in the arse’ (The Guardian)

Fisher’s financial myth-busters: ensure it’s a bull before diving in (Money Observer). Also see Fisher’s financial myth-busters: one big bear and you’re done (Money Observer)

When to buy the oil services sector (Interactive Investor)

What’s So Cool About ETFs? (Blackrock Blog)

Why Facebook’s math doesn’t add up (MaCleans)

The myth of being average (Vanguard Blog for Advisors). Plus read Shopping for alpha: You get what you don’t pay for (Vanguard)

Connecting to China’s New Equity Plays (Alliance Bernstein Blog)

Against the tide: Italy is a boiling frog (EuroMoney)

Washington War Memorial

 National World War II Memorial, Washington DC

On the Performance of Greek Bank Stocks Year to Date

Posted by on

The Greek people elected PM Alexis Tsipras of the left-wing SYRIZA party in the recent election. Since his election, he has canceled some of the austerity programs and has reinstated certain laid public workers such as street cleaning ladies.Greece is without a doubt on a collision course with its creditors.According to one report, Greece owes  some €315bn or the equivalent of 175% of its GDP to creditors. From a news article in the BBC today:

German Chancellor Angela Merkel has ruled out cancelling any of Greece’s debt, saying banks and creditors have already made substantial cuts.

But Mrs Merkel told the Die Welt newspaper she still wanted Greece to stay in the eurozone.

Greece’s left-wing Syriza party won last weekend’s election with a pledge to have half the debt written off.

Its finance minister said the “troika” of global institutions overseeing Greek debt was a “rotten committee”.

The troika – the European Commission, European Central Bank and International Monetary Fund – had agreed a €240bn (£179bn; $270bn) bailout with the previous Greek government.

But new Finance Minister Yanis Varoufakis has refused to work with the troika to renegotiate the bailout terms and has already begun to roll back the austerity measures the creditors had demanded of the previous government.

Meanwhile, EU economic and financial affairs commissioner Pierre Moscovici told the BBC’s Hardtalk that Greece had to honour its previous commitments, although he said he wanted Greece to remain in the eurozone.

Source: Greece economy: Merkel rules out more debt relief, Jan 31, 2015, The BBC

Investors in Greek stocks are voting with their foot since the new government took power. The benchmark Athens Stock Exchange General Index is down over 12% year-t0-date. Banks have fallen even more so far this year as they would be the most hurt if negotiations with troika fail, their liquidity dries up, the economic situation gets worse, etc. The FTSE/ATHEX Banks Index is off over 38% this year. Earlier it was off more than 50% as the chart shows below:

Click to enlarge

FTSE-Athex Banks Index

Source: Schwab Market Perspective: Diverging Policies…Converging Economies?, Charles Schwab

In the past five years the index is down by more than 90%.

FTSE and the Athex group have announced to rebase the FTSE/ATHEX Banks Index by multiplying index values by 10 after the close of business on February 3, 2015 to improve efficiency and seamless operation.

The year-to-date returns of three Greek banks trading as ADRs on the US markets are listed below:

1.Company: Alpha Bank (ALBKY)
Year-to-date return: -28.57%

2.Company: EFG Eurobank Ergasias S.A.(EGFEY)
Year-to-date return: -50.00%

3.Company: National Bank of Greece
Year-to-date return: -38.55%

Disclosure: No Positions

For the complete list of Greek ADRs go here.

European Bank Stocks: Five to Consider and Five to Avoid

Posted by on

The European banking sector offers many attractive opportunities now as the economic recovery gains momentum. Investors looking to buy and hold these stocks for a minimum of three to five years may be able to reap solid returns. Unlike in the past,  it is highly unlikely that another European sovereign debt or other type of crisis will occur due to the change of government in Greece.

After years of dithering some banks in Europe have raised capital and are now in a better position than before. They have also written off most of their bad debts and are now focused on growing profitably again.In addition, the financial sector is the pillar of any economy and hence banks are bound to benefit from increased economic activity in Europe. European bank stocks also lagged their American peers last year and offer value at current levels.

The Euro STOXX Banks Index which contains 32 banks from the Eurozone is down 2.55% year-to-date in Euro price terms. In the past five years the index is down about 35%.

The following are five European bank stocks that investors must avoid:

1.Company: Royal Bank of Scotland Group PLC (RBS)
Current Dividend Yield: No dividends paid
Country: UK

The British government owns 63% of ordinary shares and RBS is still suffering from losses sustained during the global financial crisis.

2.Company: Lloyds Banking Group PLC (LYG)
Current Dividend Yield:  No dividends paid
Country: UK

Similar to RBS, the state is a major owner of Lloyds and the bank last paid a dividend in 2009.

3.Company: National Bank of Greece (NBG)
Current Dividend Yield:  No dividends paid
Country:Greece

Despite two reverse stock splits in a short period of time, National Bank of Greece is not worth investing now.

4.Company: Danske Bank (DNSKY)
Current Dividend Yield:  No dividends paid
Country: Denmark

Though Danske restarted dividend payments last year, it still has a long way to go before becoming “normal” bank.

5. Company:Societe Generale (SCGLY)
Current Dividend Yield:
Country: France

Socgen raised its dividend last year but the stock is still ignored by big investors. The stock price struggles to move past the $10 range. BNP Paribas may be a better alternative among French banks.

Five European bank stocks to consider:

1.Company: ING Groep NV (ING)
Current Dividend Yield:  No dividends paid
Country: The Netherlands

ING paid off its final EUR 1.025 billion loan to the Dutch government in November, 2014 and is on track to restart its dividend payments this year. The bank hasn’t paid a dividend since the global financial crisis. ING sold off many of its units worldwide in recent years including the ING Direct units in Canada and U.S. to raise cash. At $12.72 a share one cannot go wrong to buy it for the long haul.

2.Company: Nordea Bank AB (NRBAY)
Current Dividend Yield: 4.75%
Country: Sweden

On Jan 28th, Nordea raised dividends by 44% and will now 0.62 euro per share from 0.43 euro earlier. The ADR swiftly rose in two days from $11.83 to close at $12.96 today.

3.Company:Svenska Handelsbanken AB (SVNLY)
Current Dividend Yield: 5.41%
Country: Sweden

One of the strongest and most conservative banks in the world. The bank has good growth prospects according to this article.

4.Company: UBS AG (UBS)
Current Dividend Yield: 1.70%
Country: Switzerland

5.Company: HSBC Holdings PLC  (HSBC)
Current Dividend Yield: 5.27%
Country: UK

Of all the major British banks, “The World’s Local Bank” looks attractive at current levels with an excellent dividend yield.

Note: Dividend yields noted above are as of Jan 29, 2015. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long ING, DNSKY, LYG