Which British Banks Are Worth Investing In Now?

The British banking industry is slowly recovering from a multitude of problems including the effects of global financial crisis, the European debt crisis, the LIBOR manipulation scandal, etc. Among the top five banks, three reported decent earnings for  last year. In addition, HSBCBarclays and Standard Chartered also increased their dividends for the first time since the financial crisis  in the most recent earnings.  All the three banks have strong exposure to overseas markets with HSBC calling itself  “the world’s local bank”. Hence investors looking to add British bank stocks can add these banks at current or lower prices.

Lloyds Banking Group and Royal Bank of Scotland Group reported losses for 2012 and currently do not pay a dividend.The British government still holds major stakes in them. Hence uncertainty shrouds the future of these banks. Since markets hate uncertainty it is not surprising that investors are not attracted to them.

From an article in The Wall Street Journal today:

Donald Kohn, a former U.S. Federal Reserve vice chairman now on the U.K. central bank’s Financial Policy Committee, said in an interview that a clear plan to get the two lenders back into wholly private hands would enable the duo to be “a more vigorous competitive presence in the U.K. market.”

The British taxpayer has an 81% stake in RBS and a 40% stake in Lloyds, following bailouts in 2008 and 2009. Official figures show lending to most parts of the economy shrank in 2012.

“I think sitting where we are right now with this major government ownership, with people not being clear about the path forward and the timing of the path forward, I think [that] has perhaps contributed to some extent to some of these supply issues,” Mr. Kohn told The Wall Street Journal in London.

The five British banks are listed below with their tickers on the US markets and the current dividend yields:

1.Company: HSBC Holdings PLC (HBC)
Current Dividend Yield: 6.57% 4.10%

2.Company: Barclays PLC (BCS)
Current Dividend Yield: 2.17%

3.Company: Standard Chartered PLC (SCBFF)
Current Dividend Yield: 3.44%

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

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

The following chart shows the performance of the five banks since 2009:

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UK-Bank-Stocks-Return

 

Clearly RBS and Llyods are lagging their peers by a wide margin.

Source: Yahoo Finance

Note: Dividend yields noted are as of Mar 12, 2013

Disclosure: Long LYG

Performance Comparison: Mexico vs. Canada and USA

The Mexican stock market reached record highs since Enrique Peña Nieto became the President last year. Despite drug violence the country’s economy performed well in the past few years. Though the Mexican economy is highly related to the U.S. economy, it recovered quickly from the recession following the global financial crisis. Mexico’s manufacturing industry is booming as it competes fiercely with China. Due to the distance factor and rising labor costs in China some American and foreign companies are moving their manufacturing operations to Mexico. As the US economy recovers Mexico’s exports to the US is rising.

Despite being an emerging market, the long-run performance of the Mexican equities is excellent. I wanted to see how the returns of Mexican stocks compared against those the Canadian and U.S. stocks. The performance data of the respective iShares ETFs for Mexico (EWW) and Canada (EWC) and the SPDR S&P 500 ETF (SPY) for the US show that Mexico beat Canada and U.S. easily in all the periods shown below.

a) 1-Year performance of Mexico against Canada and U.S.:

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Mexico-vs-Canada-USA-1-year

b) 5-Year performance of Mexico against Canada and U.S.:

Mexico-vs-Canada-USA-5-years

c) Multi-year performance of Mexico against Canada and U.S.:

Mexico-vs-Canada-USA-Multi-year

Source: Yahoo Finance

It is surprising to the see Mexican equities outperform by wide a margin compared to U.S. and Canadian equities. Currently the iShares MSCI Mexico Capped Investable Market ETF(EWW) has a dividend yield of 1.02% and total assets of $2.0 B. On the other hand, the iShares MSCI Canada Index Fund (EWC) and SPDR S&P 500 ETF (SPY) have total assets of $5.0 B and $125.0 B respectively. One of the key takeaways from this post is investors venturing into South of the border can earn higher returns. Though past performance is not a predictor of future performance, in the current situation many factors tend to be in Mexico’s favor.

Note: Dividend yields noted are as of Mar 11, 2013

Disclosure: No Positions

A Review of Legal Immigrants Into The U.S. From 1820 To 2010

The U.S. population as of Mar 9, 2013 is 315,462,878 according to the POPClock by the U.S. Census Bureau. The World population as of the same date is 7,071,147,165.

Some interesting facts on the U.S. population provided by the Census Bureau:

  • White persons, percent, 2011:  78.1%
  • Black persons, percent, 2011:  13.1%
  • American Indian and Alaska Native persons, percent, 2011:  1.2%
  • Asian persons, percent, 2011:  5.0%
  • Native Hawaiian and Other Pacific Islander persons, percent, 2011:  0.2%
  • Persons reporting two or more races, percent, 2011:  2.3%
  • Persons of Hispanic or Latino Origin, percent, 2011:  16.7%
  • White persons not Hispanic, percent, 2011:  63.4%

As the meting pot of the world, the makeup of immigrant population in the U.S. has changed over the years. The following three charts show the flow of immigrants into the country based on three factors.

a) Total immigrants into the U.S. by decade:

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1-Immigrants-by-Decade

b) Total Immigrants by source region:

2-Immigrants-by-Region

c) Total Immigrants by 50-year periods and region:


3-Immigrants-by-Region-and-50-Year-Periods

European immigrants were the top immigrants in the 19th century and upto 1919. Even until 1969, Europe contributed most of the legal immigrants to the U.S. However that has changed now with South Americans and Asians being the top immigrants groups.

Source: Immigration, Stories of Yesterday and Today, Scholastic Inc

A Review of Top High-Speed Rail Countries

In December, 2012 China opened the high-speed rail line between Beijing and Guangzhou. The distance of  2,298 Kms between these cities will be covered by high-speed trains at less than 10 hours going at over 300 Km/hr. The trains effectively cut the travel time in half between these major Chinese cities. With the addition of this line, the total high-speed rail line in China equals 9,300 kms according to a post in FT beyondbrics blog. Already the country takes the first place in total high speed rail line length ranking. China plans to expand the network to 18,000 km by 2015.

CHINA-RAIL-TRANSPORT

 

The top countries in terms of existing high-speed line network at the end of 2011 are China, Japan, Spain, Italy, France and Germany. The following chart shows the high-speed rail network of select countries:

Click to enlarge

High-Speed-rail-Countries-Select-Countries

Source:   Chart of the week: high-speed rail,  Dec 30, 2011, FT beyondbrics blog

In addition to China, other emerging countries like Turkey and Brazil are also planning the construction of high speed rail networks. It is shocking that the U.S. has a tiny high speed line compared to the other developed countries. It is sad that the only high-speed train service is the Acela Express in the Northeast of the country that runs at top speed of  just 240 km/h (150 mph). It connects just five cities and its speed is very low compared to comparable services in other countries including China. Though the country’s size is huge and very well suited for high speed train network, the auto-oil-airline industrial complex makes sure that Americans are held hostage to their products and services. This situation is unlikely to change for the foreseeable future.

Will high-speed overtake the airline industry anytime soon?

The answer is an absolute no due to many reasons.  Despite the growing popularity of high speed trains in countries around the world, the industry is not a major threat to the airline industry according to a report published by The Boeing Company. From the Boeing report:

Limited competition with commercial aviation

Our long-term forecast considers the impact that other technologies, including high-speed rail (HSR), have on air travel. In 2010, worldwide railways carried 45 percent less passenger traffic, but 45 times more cargo traffic than commercial aviation.

The total distance covered by railway networks was a mere 2.5 percent that of the aviation network. Analysis of the data shows that (1) railways are well suited for carrying passengers over relatively short distances (terrain permitting), whereas aviation excels for longer journeys; (2) railways are an efficient mode for overland cargo transport; and (3) aviation is very effective for creating large transportation networks without heavy investment in infrastructure.

It has been almost 50 years since Japan introduced the world’s first modern HSR service between Tokyo and Osaka. By the end of 2012, China will be operating 13,000 kilometers of HSR–more than the rest of the world combined. Yet, HSR still accounts for less than 2 percent of the world’s railway lines, and only six nations have HSR networks with tracks longer than 1,000 kilometers.

Capital intensive, sizable life-cycle carbon footprint

China’s unprecedented HSR program entailed a 2-trillion-RMB investment in a 13,000-kilometer network. In addition to the large capital investment, the infrastructure construction had significant impact on the environment. In 2009 alone, China’s HSR program consumed 20 million tonnes of steel and 120 million tonnes of concrete. The carbon emissions associated with just the raw materials amounted to approximately 150 million tonnes of CO2- -roughly equivalent to a quarter of the annual CO2 emissions for all the world’s airlines. Yet, Boeing analysis shows that passenger traffic on the 2012 HSR network would account for less than 2 percent of the domestic revenue passenger-kilometers flown by Chinese carriers in 2009.

Here is another chart showing the top high-speed rail countries in 2012:

Top-5-High-Speed-rail-Countries

Source: Current Market Outlook 2012-3031, Boeing

Also checkout: High Speed Rail Maps of Europe and North America (TFS)

Review: The Callan Periodic Table of Investment Returns 1993-2012

Every year Callan Associates publishes their famous Callan Period Table of Investment Returns. Recently they updated the table with data for the year 2012.

The Callan Periodic Table of Investment Returns for 2012 is shown below:

Click to enlarge

Callan-Chart-for-Year-2012

Source: Callan Associates

Some interesting observations from the table are:

  • In 2012, the emerging markets beat U.S. with a return of over 18.0%.
  • Compared to a return of just over 2.0% in 2011, the S&P 500 shot up 16.0% last year.
  • Bonds yielded just over 4.0% as measured by the Barclays Aggregate Bond Index.
  • The Russel 2000 Value index which is an index of small cap stocks beat large caps.
  • Despite wild volatility, emerging market stocks have been the best performers in the last decade.

The Callan Charts for 2011  here.

The charts for 2009 and 2010 can be found here and here.

Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • Vanguard Emerging Markets ETF (VWO)
  • SPDR S&P 500 ETF (SPY)
  • SPDR STOXX Europe 50 ETF (FEU)
  • SPDR DJ Euro STOXX 50 ETF (FEZ)
  • iSharesiBoxx $ Investment Grade Corporate Bond Fund (LQD)
  • iSharesBarclays US Aggregate Bond Fund(AGG)
  • Vanguard Total Bond Market ETF (BND)

Disclosure: No Positions

Related: The Callan Periodic Table of Investment Returns 2016: A Review