Latin American countries have made substantial progress over the past two decades or so. For the most part Brazil and other countries used their wealth from commodity exports to improve infrastructure, uplift their population out of poverty and other social causes.
The infographic below shows the transformation of Latin America as a whole over the past 20 years using select factors:
Click to enlarge
Source: Latin Trade
The top five banks in Chile based on Tier 1 Capital ratio as of the end of 2012 are shown below:
Click to enlarge
Source: The Banker
Banco Santander Chile (BSAC) was the top bank in the ranking followed by Banco de Chile (BCH). These banks currently have dividend yields of 3.80% and 4.40%. Corbanca(BCA) has an yield of over 2.00% and is expected to be sold to some other major bank.
Disclosure: Long BCA,BSAC and BCH
Latin America is home to some of the world’s largest companies. As emerging markets such as Brazil, Chile, Mexico, etc. continue to account for a larger share of the world’s GDP, companies from these regions grow to take the top spots in global rankings.
The Top 25 Companies in the Latin American region based on 2012 revenues are listed in the table below:
| 2013 Rank | Company | Country | Sector | Revenues (in millions of US $ for 2012) |
|---|---|---|---|---|
| 1 | Petrobras | Brazil | Energy | 137,694.90 |
| 2 | Pemex | Mexico | Energy | 127,019.70 |
| 3 | PDVSA | Venezuela | Energy | 124,459.00 |
| 4 | America Movil | Mexico | Tech | 59,778.00 |
| 5 | Vale | Brazil | Mining | 45,760.50 |
| 6 | Telefonica | Spain | Tech | 40,255.90 |
| 7 | BR Distribuidora | Brazil | Energy | 39,210.70 |
| 8 | Ecopetrol | Colombia | Energy | 37,735.20 |
| 9 | Odebrecht | Brazil | Holding | 37,404.70 |
| 10 | JBS | Brazil | Food | 37,042.70 |
| 11 | Walmart de Mexico | Retail | Retail | 32,242.60 |
| 12 | Grupo Ultra | Brazil | Energy | 26,385.80 |
| 13 | Techint | Argentina | Holding | 25,477.00 |
| 14 | Casino | France | Retail | 25,391.50 |
| 15 | CBD | Brazil | Retail | 24,920.20 |
| 16 | Volkswagen | Germany | Auto | 24,152.20 |
| 17 | CFE | Mexico | Energy | 23,987.80 |
| 18 | Pet. Ipiranga | Brazil | Energy | 22,917.90 |
| 19 | Copec | Chile | Energy | 22,761.20 |
| 20 | Eletrobras | Brazil | Energy | 19,348.60 |
| 21 | Cencosud | Chile | Retail | 19,116.30 |
| 22 | Carrefour | France | Retail | 18,695.50 |
| 23 | Gerdau | Brazil | Steel | 18,586.60 |
| 24 | Femsa | Mexico | Beverage | 18,379.80 |
| 25 | Braskem | Brazil | Chemicals | 17,378.70 |
Data Source: Latin 500: Latin America’s Top 500, Latin Trade
A few observations:
Investors looking to add some Latin American stocks can use the companies in the list as a starting point. Since all these are large-cap companies with revenues in the billions of dollars they less risky than medium and small cap companies.
You can download the full list of Latin 500 Companies for 2013 here.(in pdf)
Disclosure: Long PBR
Some emerging markets offer decent dividend yields and the potential for higher dividend growth compared to developed markets. However when looking to invest in emerging market companies for income it is important to be highly selective. Not all emerging markets are worth investing in for dividends. One such market that investors must avoid is South Korea.
South Korea, together with Hong Kong, Singapore and Taiwan, were the four Asian Tigers whose economies grew rapidly between the early 1960s and 1990s. Today South Korea can be considered as a developed country just like Singapore is a developed country.But for technical reasons the leading index provider MSCI considers Korea as an emerging market. Their UK-based competitor FTSE assigns the developed country status to the country. Since MSCI is more commonly used lets go with Korea as an emerging market.
Currently the MSCI Emerging Markets Index has 824 constituents from 21 markets.South Korea is the second largest constituent in the index with a weight of about 16%. Just because MSCI has assigned such a high allocation to Korea it does not mean the market offers great opportunities for dividend investors.
Four reasons on why Korea is not the place to invest for dividends are discussed below:
1. Korea has one of the lowest dividend yields relative to other countries as shown in the chart below:
Click to enlarge
Source: FT Market Data
Even China (not shown in chart) has a dividend yield of 4.6%. While the chart shows Korea has a dividend yield of 1.2%, most firms maintain their dividend yields at 1% or less.
2. The average payout ratio for Korean firms is just 12% compared to 31% for emerging markets as a whole.
3.The culture of paying dividends to shareholders is a low priority for Korean companies. This tradition is not going to chnage soon like in other emerging markets. For example, Samsung has a payout ratio of only 10%. Instead of increasing the dividend payout to shareholders, recently the company decided to pay about $1.0 billion in bonus to employees. Samsung has kept its dividend yield around 1% or less according to a Reuters report.
4.Korean companies have convoluted holding structures making it difficult for investors to find out if dividends will paid or not. For example, late last year a big block sale in the shares of SK Telecom hit the market but the seller was POSCO, the major Korean steel company.
Most Korean companies are part of chaebol which is similar to a conglomerate. One chaebol may have multiple companies under it.These chaebols are controlled by founding families and have complicated management structures. World-class Korean firms such as Samsung, Hyundai, LG, etc. are some examples of chaebols.
Click to enlarge
Chart Source: DayOnBay
Source: Emerging market income rewards selective investors, Emily Whiting, J.P.Morgan Asset Management, UK
The iShares MSCI South Korea Capped ETF(EWY) has a dividend yield of 1.41%. Of the nine Korean firms listed on the organized US exchanges, Korea Electric Power Corp. (KEP) is a unique case.As an utility one would expect the company to pay good dividends. But KEP’s dividend yield is 0%.The last time it paid a dividend was in 2005 !.
Disclosure: No Positions
Update – 11/15/2015:
Click to enlarge
Source: It’s Payback Time for Korean Chaebol, Bloomberg, Nov 15, 2015
Emerging equity markets are having another bad year so far. Some of the emerging market currencies such as the Russian Ruble, Turkish Lira, Argentina Peso, etc. fell heavily this week adversely affecting the stocks markets. As investors fled the emerging markets, developed markets also followed especially this week. Argentina is one of the main initiators of the recent emerging market panic. Unlike last year Argentine stocks have performed poorly this year. Though Argentina seemed to have turned a corned last year, it now appears it is headed for more trouble this year.
Ten reasons to avoid Argentine stocks this year are noted below:
Sources: In Argentina, a Populist Formula Goes Flat, The Wall Street Journal, Jan 24, 2014 and others as linked
Most of the Argentina ADRs are in the negative territory this year. The Global X FTSE Argentina 20 ETF (ARGT) is down about 15%.
The table below shows the year-to-date performance of Argentine ADRs trading on the US exchanges:
| S.No. | Company | Ticker | Stock Price on Jan 24, 2014 | YTD % Change | Industry |
|---|---|---|---|---|---|
| 1 | Alto Palermo | APSA | $22.10 | 4.94% | Real Estate Inv&Serv |
| 2 | Tenaris | TS | $44.33 | 1.46% | Indust.Metals&Mining |
| 3 | Edenor | EDN | $5.10 | 0.79% | Electricity |
| 4 | Transportadora de Gas del Sur | TGS | $1.98 | -8.76% | Oil & Gas Producers |
| 5 | BBVA Banco Frances | BFR | $6.30 | -9.48% | Banks |
| 6 | Ternium | TX | $28.33 | -9.49% | Indust.Metals&Mining |
| 7 | Cresud | CRESY | $9.11 | -9.80% | Food Producers |
| 8 | Telecom Argentina | TEO | $15.09 | -12.47% | Mobile Telecom. |
| 9 | Nortel Invesora | NTL | $17.25 | -13.32% | Mobile Telecom. |
| 10 | IRSA Inversiones y Representaciones | IRS | $10.10 | -16.60% | Real Estate Inv&Serv |
| 11 | Banco Macro | BMA | $19.85 | -18.21% | Banks |
| 12 | Petrobras Argentina S.A. | PZE | $4.50 | -18.92% | Oil & Gas Producers |
| 13 | Pampa Energia | PAM< | $4.15 | -20.80% | Electricity |
| 14 | Grupo Financiero Galicia | GGAL | $8.15 | -22.01% | Banks |
| 15 | YPF | YPF | $23.02 | -30.16% | Oil & Gas Producers |
Source: BNY Mellon
Disclosure: Long BMA
Related:
Argentina is going down (MoneyWeek)
8 bizarre things that only happen in emerging market Argentina (FinancialPost)