Knowledge is Power: China’s Success, Emerging Markets, Speculation Edition

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China’s success challenges a failed economic consensus

America’s Dirty War Against Manufacturing (Part 2): Carl Pope

‘Speculation Is an Important Cause of High Prices’

‘I have 90% of my portfolio in emerging markets’

10 top U.S. dividend stocks to own until retirement

The uncoupling of decoupling: Latin America’s experience

U.S. grows while Europe stumbles

The corn flake way to higher employment

Diamonds aren’t forever: Oppenheimers leave De Beers

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Volkswagen’s Autostadt Center,  Wolfburg, Germany

Comparing Goods Exports of Select Countries

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The following chart shows the exports of goods as a percentage of GDP for a select few countries:

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Source: Guide to the Markets, 1Q 2012, J.P. Morgan Asset Management

A few observations:

  • The majority of the goods produced in Canada are exported to the U.S.
  • Exports of goods account for about 37% of the Germany’s GDP and about 21% of the goods are exported to Eurozone countries.
  • Among the developed countries shown, the exports of goods as a percentage of GDP is the lowest for the U.S.

Five Investment Opportunities in the Home Care Sector

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One of the consumer staple industries that can be considered as recession-proof is the home care industry. Manufacturers in this sector produce a wide variety of goods for various categories including laundry care, air care, surface care, toilet care, insecticides, dishwashing, polishes and bleaches.

According to a report by Euromonitor International, laundry alone accounts for five out of $10 spent on home care globally and it dominated the home care market for the period from 2005 to 2010. As a non-food staple, sales of laundry detergents and fabric softeners are booming in emerging markets since washing machines are becoming one of the must-have household appliance of the rising middle-class.

The five growing market for washing machines and dishwashers are Brazil, Russia, China, India and Mexico. However these countries accounted for only 2% of the unit sales of dishwashers compared to 42% of the unit sales of home laundry appliances. Dishwashing machines sales are lower in emerging markets because it is easier and cheaper to get domestic service. Between 2005 and 2010, home care growth in emerging markets was 55% relative to only 6.1% in the developed markets.

Sales of air care products, dishwashing machines, surface care products, polishes tend to be much higher in developed countries due to the health and hygiene consumption culture more prevalent in these countries. Consumption of these products in emerging countries may also increase as the standard of living increases.

How to profit from the strong growth in the home care industry?

Major multinational companies dominate the home care market. Hence investors can consider investing in these firms directly to profit from their exposure to both developed and emerging markets.

A brief overview of the Top Five Multinational Home Care Manufacturers follows:

1.Procter & Gamble (PG)
Cincinnati, USA-based P&G is the world’s largest manufacturer of home care products. In addition to the US market, P&G has a strong presence in most emerging markets. Some of the brands owned by P&G include Tide, Febreze, Downy, Dawn, Ariel, etc. With a market capitalization of $181.0 billion, P&G’s stock is trading closer to its 52-week high of about $68. The current dividend yield is 3.19%.

2.Reckitt Benckiser (RBGPY)
UK-based Reckirr Benckiser has operations in more than 20 countries and sales in 200 countries. Reckitt is the owner of 19 global brands including Lysol, Calgon, Woolite, Finish, Dettol, etc. The company is also part of the FTSE 100 Index. The OTC traded ADR closed at $10.19 last Friday and the dividend yield is 3.76%.

3.Henkel (HENKY)
Founded in 1876, Düsseldorf, Germany-based Henkel derives the majority of its revenues from western Europe and has a weak but growing presence in emerging markets. Some of the Henkel-owned brands are Purex, Mir, Soft Scrub, Bref, etc. Henkel (HENKY) has a $12.0 billion market cap and closed at $47.12.

4.Unilever (UN, UL)
Anglo-Dutch company Unilever operates in more than 100 countries and has sales in 180. Unilever is well established in many emerging countries with many popular brands such as Sunlight, Surf, Comfort, etc. The Netherlands-based division trades with the ticker UN on the NYSE and the UK-based division trades with the ticker UL. The current yields of UN and UL are 3.87% and 3.94% respectively.

5. SC Johnson
US-based SC Johnson is a family owned private company and owns many powerful brands including Windex, Shout, Drano, Glade, Oust, etc.

Sources: The Euro Crisis and its Impact on Home Care and Home Care Review: The Strategic Implications of a Recessionary Global Market, Euromonitor International

Disclosure: Long HENKY

The Most and Least Corrupt Countries in the World

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Corruption is not a problem only in emerging and under-developed countries. It is present in developed countries as well although it is relatively small. Some countries in the developed world have implemented certain policies that indirectly fosters corruption.

Transparency International’s 2010 Corruption Perceptions Index (CPI) measures the perceptions of corruption in the public sector.The index is created by using surveys and interviews in 178 countries. CPI scores range from 10(least corrupt)  to 1 (most corrupt).

The following graphic shows the mapping of the countries based on the Corruption Perception Index (CPI):

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Source: Special Report: The Impact of Corruption, Euromonitor International

Some of the key findings in the Euromonitor report are:

  • New Zealand, Singapore and Denmark are the least corrupt countries in the world based on the CPI score.
  • The most corrupt countries are Somalia, Afghanistan, Myanmar, Iraq, Sudan, Turkmenistan and Uzbekistan.
  • Corruption affects the poorest section of a society the most.
  • Corruption in the developed world is sophisticated and include practices like campaign financing by corporations to influence policy, insider trading on stock markets, etc.
  • Certain developed countries are complicit in and benefit from corruption in the developing countries. Banking secrecy laws and favorable tax rules in Switzerland, the UK and Luxembourg facilitate the embezzlement of a nation’s wealth by corrupt elites in the developing world.
  • The U.S. is considered relatively incorrupt with a score of 7.1 on the CPI.

Canadian National vs.Canadian Pacific Railroad

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Canadian National Railway (CNI) and Canadian Pacific Railway (CP) are the major railroads in Canada. Activist investor Mr.Bill Ackman of hedge fund Pershing Square Capital Management has initiated a corporate battle to take control of the Canadian Pacific railroad and implement management changes. With a bet of $1.4 billion Mr.Bill currently holds 14.2% of the company. Promising ‘a nuclear winter’ if his demands are not met, the powerful hedge fund manager Mr.Bill proposed to replace the current Canadian Pacific CEO Mr.Fred Green with the former CEO of CN Mr.Hunter Harrison. This proposal was promptly dismissed by the CP board which is filled with Canada’s old-world business elite. However Mr.Bill, an American, considers these individuals to be inept in running the railroad. Hence this could be a long drawn out power struggle between Mr.Bill and the CP board. For more juicy details readers may want to checkout an excellent article titled The story behind the all-out war to control CP published today by The Globe and Mail.

Some of the key metrics of the two railroads are listed below:

[TABLE=1053]

Source: Company websites

Canadian National has a much stronger presence in the U.S. than Canadian Pacific and CN dominates the industrial heartland of eastern Canada.

In terms of long-term equity performance, which is better – CN or CP?

 

Source: Google Finance

CN easily beat CP in the period shown above. CP’s stock performance in the past few years has been poor. This is one reason Mr.Bill Ackman believes it is time for a major shakeup of the company’s top management.

Microsoft’s Bill Gates is a major shareholder of Canadian National holding more than 46 million shares or 10.04% of the Montreal-based railroad as of April last year.

Related Infographic:

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Source: CP’s rail reach,  The Globe and Mail

Disclosure: Long CN