A Note On Spanish Banks’ Exposure To Latin America

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The Spanish banking sector has been hit hard in the past few years due to the Global Financial Crisis and then the European Sovereign Debt Crisis. Bank stocks in Spain have recovered from the March 2009 lows although they are nowhere near their pre-crisis levels.

Despite all the continuing troubles at home, some investors are attracted to Spanish bank stocks due to their overseas exposure particularly to the fast-growing Latin American economies. Since Spain used to rule much of Latin American in the past, strong colonial ties still bind the region to Spain. The following chart shows the high exposure of Spanish banks to Latin America:

Click to enlarge

Spanish-Banks-in-Latin-America

 

Source: Spanish banks boast strongest FOS network in Latam, The Banker

The Banker magazine noted:

With aggregate assets of $494.5bn, Spanish-owned banks have the strongest foreign-owned subsidiary presence in Latin America.

It is interesting to see U.S. banks having the second highest presence in the region. Bank of Novo Scotia (BNS), one of Canada’s top five banks, has a solid foot print in many Latin American and Caribbean countries.

Currently Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria S.A (BBVA) have dividend yields of 11.16% and 5.31% respectively.

The five-year performance of SAN and BBVA is shown below:

SAn-vs-BBVA-5-Years

Source: Yahoo Finance

Note: Dividend yields noted are as of Feb 22, 2013

Disclosure: Long SAN, BBVA, BNS

A Review of the S&P 500 Index

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The S&P 500 is one of the widely followed U.S. benchmark equity indices. This index is a better barometer of the U.S. markets than the Dow Jones Industrial Average or the NASDAQ indices. Here are some interesting facts about S&P 500:

  • The index was first published in 1957.
  • The 500 companies in the index are the leading companies in the leading sectors of the U.S. economy capturing 75% coverage of U.S. stocks
  • The sector breakdown is shown in the chart below:

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SP500-Sector-Breakdown

  • The average dividend yield of the index is about 2%.
  • As of Feb 27, 2013 the price return for 1, 3 and 5 years are 14.15%, 11.74% and  1.68%. But the total returns for the same periods are 16.78%, 14.14% and 3.97% respectively due to the addition of dividend returns.

Source: Standard & Poor’s

a) S&P 500 – Long Term Price Returns:

SP500-Returns-Long_TErm

b) S&P 500 – Price Returns since 2000:

SP500-Returns-Since-2000

Related ETF:

SPDR S&P 500 ETF (SPY)

Disclosure: No Positions

BRIC’s Trade With MENA Region Rising

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Trade between the Middle East and North Africa (MENA) region and the BRIC countries is increasing yearly since 2001 as shown in the graph below:

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BRICS-Trade-with-MENA

Source: Two years of Arab Spring: Where are we now? What’s next?, Deutsche Bank Research

Resource hungry China and India are interested in the natural resources of the region such as oil, natural gas and Phosphates.  China is also increasing its food exports to the region. Egypt, the world’s largest wheat importer, imports more than half of its demand from Russia.

The BRIC countries are also some of the major supplier of manufactured products and equipment to the region. For example, Tunisia is the largest market for Brazilian cars in the Arab world. China has a big presence in Algeria with the country home to some 35,000 Chinese workers. India and China are also active in Egypt. Brazil and Russia are slowly starting to increase their investments in the oil and gas sector in the region.

Related ETFs:

Market Vectors Africa Index ETF (AFK)
Market Vectors Gulf States (MES)
PowerShares MENA Frontier Countries ETF (PMNA)

Disclosure: No Positions

Lower, Growing Dividend Yield is Better Than Just Higher Dividend Yield

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Stocks that have low dividend yields but grow the yield consistently each year perform better in the long run than stocks with high dividend yields as discussed in this article. Total return of lower dividend stocks in the long run will be higher than the total return of higher dividend stocks.For example, the telecom sector pays a higher dividend than consumer staples sector. However in terms of returns consumer staples sector stocks easily beat telecom sector stocks.

In this post, let me explain this logic using the examples of three ETFs for three S&P sectors. Please note that the charts below show only price returns. If dividends are included the difference would be much here.

a) Consumer Staples Select Sector SPDR ETF (XLP)  vs.SPDR S&P Telecom ETF (XTL) – 2 Years:

Click to enlarge

XLP-vs-XTL-2-Years

 

b) Consumer Staples Select Sector SPDR ETF (XLP)  vs Utilities Select Sector SPDR ETF (XLU) – Long Term:

XLP-vs-XLU-Long-Term

Related ETFs:

Utilities Select Sector SPDR (XLU)
SPDR S&P Telecom (XTL)
Consumer Staples Select Sector SPDR (XLP)

Disclosure: No Positions

Ten Latin American Stocks Offer To Consider

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Markets have been volatile in the days since the Dow and S&P 500 almost reached their all-time highs recently. In the past couple of days the markets are more volatile supposedly due to the election mess in Italy and revived fears of the Euro collapse. According Jan Luthman of co-manager of the Liontrust Macro Equity Income fund in UK  markets are resilient and that the uncertainty in Italy is unlikely to derail global economic recovery. He stated :

Europe is only 18 per cent of the global economy; much of the other 82 per cent is doing rather well.

One way to take shelter from the European and developed world economic issues is to diversify into emerging market stocks. Though correlations between emerging and developed markets have increased in the past few years, emerging markets are still more influenced by domestic factors as opposed to say Italian elections. Since many emerging economies are doing well it is wise to invest in emerging equities.

Ten randomly selected Latin American stocks are listed below with their current dividend yields for consideration:

1.Company: Copa Holdings SA (CPA)
Current Dividend Yield: 2.16%
Sector: Airline
Country: Panama

2.Company: Credicorp Ltd (BAP)
Current Dividend Yield: 1.56%
Sector: Banking
Country: Peru

3.Company: Empresa Nacional de Electricidad SA (EOC)
Current Dividend Yield: 2.95%
Sector: Electric Utilities
Country: Chile

4.Company: CPFL Energia SA (CPL)
Current Dividend Yield: 7.51%
Sector: Electric Utilities
Country: Brazil

5.Company: Fomento Economico Mexicano SAB de CV (FMX)
Current Dividend Yield: 1.22%
Sector: Beverages (Nonalcoholic)
Country: Mexico

6.Company: Administradora de Fondos de Pensiones Provida SA (PVD)
Current Dividend Yield: 7.07%
Sector: Investment Services
Country: Chile

7.Company: Banco Latinoamericano de Comercio Exterior SA (BLX)
Current Dividend Yield: 5.00%
Sector: Banking
Country: Panama

8.Company: Union Andina de Cementos SAA (CEMTY)
Current Dividend Yield: 1.40%
Sector: Construction – Raw Materials
Country: Peru

9.Company: Banco Santander-Chile (BSAC)
Current Dividend Yield: 3.99%
Sector: Banking
Country: Chile

10.Company: Petrobras Argentina SA (PZE)
Current Dividend Yield: 4.22%
Sector: Oil & Gas – Integrated
Country: Argentina

Note: Dividend yields noted are as of Feb 26, 2013

Disclosure: No Positions