Lazard’s Ryan: Why I’m maxing out my emerging market exposure (FE Trustnet)
Don’t ‘set and forget’: Proper asset allocation is key to investment returns (Financial Post)
Tulips and stocks: Don’t succumb to their charms (The Globe and Mail)
The Japanese Economy: Will It Revive If the Bank of Japan Acts? (Charles Schwab)
America dumbs down (MaClean’s) **
Emerging Europe turns EM growth star in Q1 (beyondbrics)
Investors should not panic and sell their holdings during times of extreme volatility in equity markets especially due to a global crisis. I wrote an article earlier this year discussing why panic selling is not good. During times of times of a crisis it is best to stay clam and not do anything. I wrote a couple of articles related to this topic which can be found here and here.
From an article in The Wall Street Journal earlier this month discussing this topic:
The best course of action during a crisis: Remain calm and don’t sell. If you are bold, you could even use it as a buying opportunity.
Consider a study of 51 notable crises since 1900 conducted by Ned Davis Research, a quantitative-research firm in Venice, Fla. While any exercise of this type involves making many judgment calls, the list does include all the major suspects—from the outbreak of major conflicts (including Pearl Harbor and the Korean War), to serious threats of war (such as the Cuban missile crisis and the Sept. 11, 2001, terrorist attacks), to the 1987 stock-market crash.
Not surprisingly, the Dow Jones Industrial Average immediately fell during the 51 events, losing an average of 6.7%. The market’s low in the immediate wake of those crises more often than not marked the extent of the decline, however. Six months later, the Dow on average was higher than where it stood before the outbreak of those crises.
Source: Why It Pays to Keep Calm in an International Crisis, The Wall Street Journal, May 2-3, 2014
The article noted that after Iraq invaded Kuwait in August 1990, the Dow Jones fell 13.3% the day after. However six months later it was up by 16.3%. Similarly the index fell immediately after other geo-political events such as JFK assassination, invasion of Afghanistan by USSR, Suez Canal crisis, etc.
Hence based on historical data, if Russia gets involved militarily in the current crisis in Ukraine global equity markets will fall immediately due to investors’s knee-jerk reaction but after the dust settles a weeks later markets will recover.
Related ETFs:
Disclosure: No Positions
European and US equity markets are very volatile this year.While the S&P 500 had a solid double digit growth last year,the index is having a rocky ride this year.
The year-to-date price returns of some of the major developed and emerging benchmark indices are listed below:
The chart below shows the year-to-date price returns of exchange-listed foreign bank stocks (excluding Canada):
Click to enlarge
Data Source: BNY Mellon
A few observations:
Disclosure: Long BMA.BCA,BSAC,BCH,BBVA,SAN,LYG, BBD and ITUB
The banking industry in Canada and Australia are similar in many ways. For example, a handful of banks dominate the market in both the countries and hence competition is minimal. However in terms of returning profits to shareholders, Aussie banks fare better than Canadian banks according to a report by Moody’s and quoted in a Financial Post article.
From the article:
A new report by Moody’s throws the debate into sharp relief by comparing Canada’s big banks to lenders in Australia. The two banking systems have much in common: Both are dominated by a handful of players that benefit from limited competition. Robust retail operations underpin consistent, stellar profits.
Where they part company is on the issue of how much profit gets returned to shareholders. Investors would do well to pay attention. According to Moody’s, shareholders in Australia (so far) are way better off.
The rating agency highlights what it calls capital allocation strategies — how lenders in the two countries deal with excess cash.
“Although banks in both systems have strong profitability and attractive shareholder returns, Canadian banks invest a greater proportion of their earnings in international operations, while Australian banks return more to shareholders,” said David Beattie, a senior analyst at Moody’s and one of the authors of the report.
That’s because Australian banks stick to their knitting by focusing on boring but profitable domestic operations, and as a result are left with more capital on the table. Lenders in the land down under pay average dividends equivalent to about 75% of net profit, versus about 45% for banks here, according to the report, released on Wednesday.
Source: Australian banks pay more to shareholders than Canadian counterparts, Moody’s says, April 18, 2014, Financial Post
It should be noted that Australian banks pay more in dividends than their Canadian peers because of favorable tax policies in paying dividends to shareholders. In Australia double taxation of dividends does not exist – where in an investor receiving the dividends pays taxes on it in addition to the company paying corporate taxes.
Four Aussie banks trading on the US markets are listed below with their current dividend yields:
1.Company: Australia and New Zealand Banking Group Ltd (ANZBY)
Current Dividend Yield: 4.67%
2.Company: National Australia Bank Ltd (NABZY)
Current Dividend Yield: 5.17%
3.Company:Commonwealth Bank of Australia (CMWAY)
Current Dividend Yield: 4.91%
4.Company: Westpac Banking Corp (WBK)
Current Dividend Yield: 5.06%
Five Canadian banks on the US markets are listed below with their current dividend yields:
1.Company: Bank of Nova Scotia (BNS)
Current Dividend Yield: 3.98%
2.Company: Bank of Montreal (BMO)
Current Dividend Yield: 4.05%
3.Company: Royal Bank of Canada (RY)
Current Dividend Yield: 3.90%
4.Company: Toronto-Dominion Bank (TD)
Current Dividend Yield: 3.69%
5.Company: Canadian Imperial Bank of Commerce (CM)
Current Dividend Yield: 4.10%
Note: Dividend yields noted above are as of Apr 17, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.
Disclosure: Long BNS, BMO, CM RY and TD
Income investors hunting for dividend stocks can find plenty of potential opportunities in Asia.In identifying dividend stocks country selection is also important in addition to finding the right company. This is because not all countries in Asia are known for having strong dividend-paying cultures.
Fund manager Yu Zhang of Matthews Asia Dividend Fund, Matthews Asia addressed this point in an interview on FE Trustnet. From the interview:
Question: Which Asian countries have the strongest dividend culture?
“Surprisingly, if anything, on average, dividend payouts out of Asia compared to what you see here in Europe actually is pretty low. On average we’re still talking about 30 to 35 per cent dividend payout, which is nothing spectacular. Having said that, in Asia you’re talking about 13 different major markets. So different markets have their own slight variations. Good places to look for high-yielding stocks will get you to places like Taiwan, Singapore or Australia. Usually companies there are very accustomed to pay a high amount of income in dividends to shareholders. Some of them have very conducive, good tax schemes to encourage the companies to pay out more in dividends. The shareholders can get tax benefits by receiving dividends.”
“However, versus other places in Asia – markets like South Korea – I don’t’ think on average companies there are very used to talk about shareholder returns. So you’ll see very little dividend payouts for many of these South Korean companies. Also, in other places such as India where you will see capital usually is very expensive, so when these fast growing companies in India generate any meaningful free cashflow from the business, they tend to retain a large part of that free cashflow to reinvest back into the business.”
“That’s another reason for a pure income investor, you might have a slightly hard time finding a good yield coming from places like India.
Source: Matthews Asia: Why you need Japan for income, FE Trustnet
I agree with Mr.Zhang’s views on country selection. South Korean stocks are generally not good dividend payers. I wrote a detailed article back in January on why investors should avoid Korea when looking for dividend stocks. Simiarly India is another country that can be ignored by dividend investors. India does not have a strong dividend culture and most Indian companies are very stingy in sharing profits with investors. While Korea is problematic due to the dominance of Chaebols, many of the large Indian firms are owned and run by dynastic wealthy families who prefer to maintain control and try to grow their companies as opposed to rewarding shareholders. When companies share the profits with shareholders in the form of dividends they lose control of that cash since the money leaves the company’s coffers and management is somewhat handcuffed from engaging in grandiose behaviors such as making dubious acquisitions, spending on wasteful projects, etc.
Ten stocks from Taiwan, Singapore or Australia are listed below with their current dividend yields for further research:
1.Company: Telstra Corp Ltd (TLSYY)
Current Dividend Yield: 5.58%
Sector:Telecom
Country: Australia
2.Company: National Australia Bank Ltd (NABZY)
Current Dividend Yield: 5.22%
Sector:Banking
Country: Australia
3.Company: Westpac Banking Corp (WBK)
Current Dividend Yield: 5.22%
Sector:Banking
Country: Australia
4.Company: Australia and New Zealand Banking Group Ltd (ANZBY)
Current Dividend Yield: 4.73%
Sector:Banking
Country: Australia
5.Company: DBS Group Holdings Ltd (DBSDY)
Current Dividend Yield: 3.30%
Sector: Banking
Country: Singapore
6.Company: Singapore Telecom (SGAPY)
Current Dividend Yield: 4.43%
Sector: Telecom
Country: Singapore
7.Company: United Overseas Bank Ltd (UOVEY)
Current Dividend Yield: 3.11%
Sector: Banking
Country: Singapore
8.Company: Singapore Airlines Ltd (SINGY)
Current Dividend Yield: 2.56%
Sector: Airlines
Country: Singapore
9.Company:Taiwan Semiconductor Manufacturing Co Ltd (TSM)
Current Dividend Yield: 2.445
Sector: Semiconductors & Semiconductor Equipment
Country:Taiwan
10.Company: Chunghwa Telecom Co Ltd (CHT)
Current Dividend Yield: 4.94%
Sector: Telecom
Country: Taiwan
Note: Dividend yields noted above are as of Apr 16, 2014. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.
Disclosure: No Positions