Comparison of Debt Among the Ten Largest OECD Countries

Posted by David Hunkar on 30 April 2012, 12:09 am

The following chart shows the total debt as a percentage of GDP among the ten largest OECD countries:

Click to enlarge

Source: The Absolute Return Letter 2012, Absolute Return Partners LLP

Australia, Canada and Germany have the lowest debt while Japan, UK and Spain have the highest debt as a % of GDP. The UK remains one of the most indebted countries in the world just slightly below Japan. Since the credit crisis of 2008, the deleveraging has been higher in the US relative to UK.

From an investment standpoint it is better to avoid highly indebted countries such as Spain, UK and Japan and focus on countries with less debt such as Canada, Australia and Germany.

Related ETFs:

iShares MSCI Canada Index (EWC)
iShares MSCI Australia Index (EWA)
iShares MSCI UK Index (EWU)
iShares MSCI Germany Index (EWG)
iShares MSCI Spain Index (EWP)

Disclosure: No Positions

Banco Macro Dividend Payment Suspended

Posted by David Hunkar on 23 April 2012, 12:08 am

Argentina has taken center stage of global politics in recent weeks for all the wrong reasons. The country’s expropriation of the oil company YPF (YPF) from its Spanish parent Repsol (REPYY) has been met with widespread condemnation and retaliatory actions by Spain. In addition, already nervous foreign investors are further pulling their capital out of Argentina. As a result of this dramatic action by President Cristina Kirchner, Argentine ADRs have fallen heavily in the past few days with one commentator calling investors to sell all Argentine ADRs immediately.

Of the 17 Argentine ADRs trading on the NYSE and NASDAQ most are down YTD. YPF is down about 58% YTD.

It is too early to confirm that Argentina is on the way to become the next Venezuela or even Cuba with one nationalization. Investors may want to avoid knee jerk reaction and try to monitor the situation closely.

Other than the energy sector banking is a key sector to keep an eye on. The three Argentine banking institutions listed on the US organized exchanges are Banco Macro (BMA), BBVA Banco Frances (BFR) and Grupo Financiero Galicia (GGAL). All the three ADR are off by 50% or more in the last five years.

Banco Macro used to solid dividends until recently. When the bank announced the fourth quarter, 2011 earnings it mentioned the suspension of dividend payments due to a recent regulatory change. The YPF nationalization and the dividend suspension news has pushed the ADR price to under $16.00 on Friday.In late 2010 Banco Macro ADR traded above $54.00 a share.

From the 4Q, 2011 earnings report:

Based on BCRA Communication “A” 5273, all financial entities that wish to distribute dividends, must have an excess capital of 75% (before it was 30%) after the deduction of proposed cash dividends over the required capital. Based on the above, Banco Macro will not be able to distribute dividends.

Disclosure: Long BMA

Five Latin American Utility Stocks To Consider

Posted by David Hunkar on 15 April 2012, 11:38 pm

The never-ending European debt crisis has flared again in recent weeks with Spain taking the center stage this past week. While Portugal, Italy, Ireland and Greece were in the news in the past couple of years this is the first time Spain is becoming the focus of investors’ attention.

U.S. equity markets have performed well so far this year compared to many foreign markets. Among the developed countries Spain’s IBEX 35 is down 15.4% YTD and Italy’s FTSE MIB is off 4.8% YTD while the S&P 500 is up 9.0% YTD. Most emerging markets are also in the positive territory with Brazil’s Bovespa and Chile’s IPSA up 9.4% and 8.4% YTD respectively.

As the European crisis drags along and global economic growth worries continue, investors may want to shift some of their equity allocations to stable and dividend-yielding stocks. Electric utilities in Latin American provide some of the attractive investment options in the foreign utilities space.

The following five Latin American Electric Utilities currently pay dividends of over 3%:

1.Company: Empresa Nacional de Electricidad SA (EOC)
Current Dividend Yield: 3.63%
Sector: Electric Utilities
Country: Chile

2.Company: Cpfl Energia SA (CPL)
Current Dividend Yield: 5.20%
Sector: Electric Utilities
Country:Brazil

3.Company:Copel Companhia Paranaense de Energia (ELP)
Current Dividend Yield: 3.44%
Sector: Electric Utilities
Country:Brazil

4.Company: Companhia Energetica de Minas Gerais (CIG)
Current Dividend Yield: 6.69%
Sector: Electric Utilities
Country: Brazil

5.Company: Centrais Eletricas Brasileiras SA (EBR)
Current Dividend Yield: 6.47%
Sector: Electric Utilities
Country: Brazil

The above five stocks offer a starting point for investors looking to add Latin American utility stocks to their portfolios. It must be noted that unlike utilities in the U.S., emerging market utilities including those in Brazil and Chile will be volatile but offer strong growth potential.

Disclosure: No Positions