Knowledge is Power: Total-Return, Full Employment, Three Worlds Edition

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 Dividend stocks are popular, maybe too popular (Financial Post)

Glitter, glamour and gold (Arabian Business)

Income-hungry investors should consider preferreds; Luukko (The Star)

Guns in America  – Broken hearted (The Economist)

Restore full employment with a massive infrastructure program (EPI)

Nationalization Works (The Baseline Scenario)

Black Swan author Nassim Nicholas Taleb divides the world into three (MacLeans)

Total-return investing: An enduring solution for low yields (Vanguard)

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 The National Library of Belarus, Minsk

Photo Credit: English Russia

Average Annualized Equity Returns of Rapid Growth Markets 2000-2012

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Investing in emerging and frontier markets involves higher risks compared to investing in developed markets.However for investors willing to learn and explore opportunities in the emerging world the rewards can be substantial. The returns can be especially high over a period of many years when the compounding effect comes into play.

The Average Annualized Equity Returns for select Rapid Growth Markets(RGMs) is shown below:

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Source: Rapid-growth markets: Moving toward the mainstream, Ernst & Young

Colombia was the top performer with a solid annualized return of 29% followed by Ukraine, Kazakhstan, Indonesia and Russia. Since global commodities such as oil soared during the period shown above it is not surprising to see Colombia and Russia are among the top of the list. The movement of Russian equity market is highly correlated to the price of crude oil.

Relative to the double growth of these markets, the S&P 500 grew by just 1.5% and European equities fell by an annualized rate of 4.6% respectively. In the past 12 years, the annualized return of MSCI Emerging Markets Index and the MSCI World Index were 6.2% and 1.6% respectively.

From the E&Y research report:

The difference in returns, compounded over this period, would have been considerable. For example, US$100 invested in Colombia’s stock market in 2000 would be worth approximately US$2,700 by 2012. For the Chinese, American and Japanese stock markets the corresponding returns would have been US$217, US$121 and US$56 respectively.

US equities fared very poorly when compared to the emerging equities although they were better than Japanese and European equities. European stocks had negative returns primarily due to the fall in prices during the debt crisis there in the past few years.

Ten emerging market ADRs from some of the countries in the above chart are listed below for further further research:

1.Company: PetroChina Co Ltd (PTR)
Current Dividend Yield: 3.61%
Sector:Oil & Gas Operations
Country: China

2.Company:Bancolombia SA (CIB)
Current Dividend Yield: 2.33%
Sector: Banking
Country: Colombia

3.Company:Coca Cola Femsa SAB de CV (KOF)
Current Dividend Yield: 1.33%
Sector:Beverages (Nonalcoholic)
Country: Mexico

4.Company:HDFC Bank Ltd (HDB)
Current Dividend Yield: 0.56%
Sector: Banking
Country: India

5.Company: Banco Santander-Chile (BSAC)
Current Dividend Yield: 4.16%
Sector: Banking
Country: Chile

6.Company: Ultrapar Participacoes SA (UGP)
Current Dividend Yield: 2.61%
Sector:Retail (Specialty)
Country: Brazil

7.Company:CPFL Energy INC (CPL)
Current Dividend Yield: 6.85%
Sector: Electric Utilities
Country: Brazil

8.Company: Malayan Banking Bhd (MLYBY)
Current Dividend Yield: 7.20%
Sector: Banking
Country: Malaysia

9.Company: Sasol Ltd (SSL)
Current Dividend Yield: 4.83%
Sector:Chemical Manufacturing
Country: South Africa

10.Company: Latam Airlines Group SA (LFL)
Current Dividend Yield: 2.02%
Sector: Airline
Country: Chile

Note: Dividend Yields noted are as of Dec 13, 2012

Disclosure: No Positions

Apple vs. Sony

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Apple(AAPL) stock reached a peak of  $705.07 earlier this year and became the most valuable company in the world. Yesterday it closed at $529.69 and the market capitalization stands at $498.3 billion.

Japan’s Sony Corp’s (SNE) stock trading in Tokyo reached the lowest price since 1980, a year after the company introduced Walkman. Sony’s market capitalization has fallen around 90% since the start of the millennium. Sony’s product used to command a premium for their quality and consumers were willing to pay for the company’s cool and innovative products. Sony had last that edge in recent years due to competition from rivals including Apple. Yesterday the ADR closed at $10.73 in New York giving the company a market value of $10.8 billion.

I came across the following chart in article at Asia Times Online. Unlike Sony, Apple continues to come out with products that consumers want and charge a premium for its world-class products.  The company is especially successful with the design of its products and the softwares that run them.

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Apple Inc (moved 12 years forward) vs. Sony stock price

 

Source: What’s bad for Apple is good for America, by Spengler, Asia Times Online

Disclosure:  No Positions

Mexico Stocks Reach Record High

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Mexico’s IPC Index is on a roll this year.The index reached a new all-time yesterday and closed at 43,183.28. Relative to Mexican stocks, Brazilian stocks have lagged this year. Indeed Brazil’s Bovespa and the IPC index have diverged in performance since early 2010 as shown in the chart below:

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Source: Yahoo Finance

FT’s beyondbrics blog noted the following quote by Geoffrey Dennis, global emerging markets strategist at Citi:

Mexico has several positives: 1) it is tied closely to US economy which is the strongest part of the developed economies; 2) the outlook for structural reform in the new Pena Nieto government; 3) the peso looks undervalued; 4) strong earnings growth; 5) the market has a high proportion of domestic growth stocks which have been defensive this year.

As commodity markets have cooled this year, Brazil’s commodity-heavy Bovespa is lagging relative to the consumer stocks focused IPC index. The majority of the IPC constituents come from the telecom, retail and consumer good sector.

Related ETFs:

  • iShares MSCI Brazil Index (EWZ)
  • iShares MSCI Mexico Investable Market Index (EWW)

Disclosure: No Positions

Which Countries are Vulnerable To a China Slowdown?

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The Shanghai Stock Exchange Composite Index is down 5.31% year-to-date. Among the BRIC countries, Brazil, India and Russia are performing much better with India’s Sensex up by more than double digits YTD.

The Chinese economy grew by only by 7.4% in third quarter this year which is lower by the country’s earlier growth figures. China has predicted the economy to grow by 7.5% for the next few years. Western companies with high exposure to China are already preparing for the slowdown, according to an article in The Guardian. As China is a major consumer of commodities, countries that depend on China will be heavily impacted by this slowdown.

The follow chart shows the dependency of key commodity markets on China:

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Obviously China’s major trading partners will be the countries that will be most affected in addition to countries that depend on commodity exports to China such as Australia and Brazil.

The countries that are most vulnerable to China is show in the chart below:

Source:  The China Syndrome, T. Rowe Price Report, Issue No. 117 Fall 2012

Quoting an article the Wall Street Journal the T.W.Rowe Price Report noted:

“Economies in the region are perching perilously on an increasing dependence on China.…Every major economy in Asia has seen exports to China grow faster than to the rest of the world.”

China’s top Asian trading partners  South Korea, Japan, Taiwan, and Indonesia. As Australia is highly dependent on China, investors need to be cautious on making any investments there. In a general, the China’s slowdown will not only impact the countries noted above but the whole global economy as well due to globalization.

Related ETFs:

  • iShares MSCI Australia Index Fund (EWA)
  • iShares MSCI Brazil Index (EWZ)
  • iShares MSCI South Korea Index Fund(EWY)
  • iShares MSCI Japan Index (EWJ)
  • SPDR S&P 500 ETF Trust (SPY)
  • iShares MSCI Indonesia Investable Market Index Fund (EIDO)

Disclosure: No Positions