Another Look at the Stock Markets in China

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Last month we looked at the various types of stocks traded in China. In this post, lets take a quick look at the vast opportunities available for investors in the Chinese equity markets.

Today, China A-shares alone have a large universe of roughly 2000 companies and total market cap of USD 3.3 trillion (Japan has a market cap of USD 4.0 trillion, the UK’s market cap is USD 3.9 trillion) – constituting approximately a half of the total Chinese equitymarket exposure (table 1).

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China A-shares offer complementary industry exposures compared to the MSCI China index. While the MSCI China index tends to be heavily skewed toward financial institutions, energy and telecommunication companies, China A-shares, using the CSI 300 index as a proxy, are broader and more diversified across sectors. Additionally, China A-shares’ industry breakdown better reflects China’s real economy (table 2).

Source: Risk & Reward, Q2/2011, Invesco Perpetual, UK

Related ETF:

iShares FTSE China 25 Index Fund (FXI)

Disclosure: No Positions

U.S. Corporate Dividend Payouts Poised To Rise Further

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Many U.S. companies have reinstated (or) increased dividend payments since the credit crisis of 2008-09. The amount of payouts and the number of companies with positive dividend actions have increased in recent months. According to Standard & Poor’s, in the first half of 2011, net cash payouts among S&P 500 companies rose by a record $25.5 billion. In addition, the number of companies that raised or initiated dividends during this time rose to 204 from 140 in the prior-year period.

As dividend raises indicate a company management’s confidence in its future stream of cash flows, investors have to pay close attention to this factor when evaluating potential investment opportunities. A report by Cohen & Steers notes that “Dividends have increased at a record pace so far in 2011, and are poised to continue growing.”

While financials have still  a long way to go, most other sectors within the S&P 500 have increased their dividends this year.

According to the report, corporate dividend payouts are poised to rise substantially in the following years due to the following three factors:

  • Strong Earnings
  • Strong Balance Sheets
  • Historically Low Payout ratio

Companies in the S&P 500 have amassed a near-record $3.6 trillion in cash and marketable securities.

Although aggregate payouts for companies in the S&P 500 are nearing historical highs, dividends have not kept pace with earnings growth, sending the average payout ratio plummeting to an all-time low of 28%, as shown in Exhibit 7.

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Related ETF:

SPDR S&P 500 ETF (SPY)

Disclosure: No Positions

The Five Best and Worst Performing Latin American ADRs YTD

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The S&P 500 is down 3.3% YTD as of September 16th this year. Among the Latin American markets, Brazil’s Bovespa, Mexico’s IPC All-Share and Chile’s IPSA are off 17.5%, 8.7% and 17.7% respectively. Compared to Brazil, Chile and Argentina, the heavily US-dependent Mexico is holding up relatively well.

The five best and worst performing Latin American ADRs are noted below.

a) The Best performers:
1.Company: Fomento Economico Mexicano (FMX)
YTD Change: 21.41%
Current Price: $67.89
Sector:Beverages
Country: Mexico

2.Company: Telecomunicacoes de Sao Paulo (VIV)
YTD Change: 20.68%
Current Price: $29.53
Sector: Telecom
Country: Brazil

3.Company: Coca-Cola Femsa (KOF)
YTD Change: 13.49%
Current Price: $93.55
Sector:Beverages
Country: Mexico

4.Company: BRF – Brasil Foods  (BRFS)
YTD Change: 11.43%
Current Price: $18.81
Sector: Food Producers
Country: Brazil

5.Company: Alto Palermo (APSA)
YTD Change: 10.90%
Current Price: $17.70
Sector: Real Estate Investment and Services
Country: Argentina

b) The Worst performers:
1.Company: Cemex (CX)
YTD Change: -55.34%
Current Price: $4.60
Sector: Cement Manufacturing
Country: Mexico

2.Company: Gol (GOL)
YTD Change: $53.19%
Current Price: $7.20
Sector: Airlines
Country: Brazil

3.Company: Banco Macro (BMA)
YTD Change: -53.15%
Current Price: $23.52
Sector: Banking
Country: Argentina

4.Company: Edenor (EDN)
YTD Change: -50.11%
Current Price: $6.80
Sector: Electric Utility
Country: Argentina

5.Company: Maxcom Telecomunicaciones  (MXT)
YTD Change: -50.00%
Current Price: $1.85
Sector: Telecom
Country: Mexico

Note: Data shown above are as of market close September 19, 2011

Disclosure: Long BMA

Ten Asian Stocks For Yield and Growth

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Asian equity markets have established a reputation for growth. However investors often overlook the fact that Asian equities yield high incomes also in addition to capital gains and hence generate solid total-returns. The traditional thinking that growth markets cannot sustain attractive dividend yields is no longer true. In fact, emerging market companies are starting to pay or increasing dividends in order to attract foreign and domestic capital.

Some of the reasons in favor of investing for income in Asia are discussed below:

1. Investors should not consider investing in Asia solely for growth. Asian stocks currently yield more income than the global average and significantly more than their US counterparts as shown in the chart below:

2. The average payout ratio of companies within the Asia Pacific (ex-Japan) universe has hovered around a sustainable 40-50% in the last decade.

3. Dividend yields are high in mature economies such as Australia and Taiwan, but they are slowly improving in emerging countries such as India and China.

From the Invesco report:

According to CLSA Asia-Pacific Markets (CLSA), 87% of companies in the Asia-Pacific ex-Japan universe will pay dividends this year – up from 60% at the start of the decade. This group of companies is expected to distribute USD 147 billion worth of dividends, with 23 companies expected to pay more than USD 1 billion each, and another 38 to pay more than USD 500 million, accounting for an additional USD 25 billion. By comparison, five companies are expected to account for 40% of all dividend payments in the UK.

Source: Risk & Reward, Asian Equity Income – a total-return strategy, Invesco Perptual, UK

Ten Asian stocks trading on the US markets are listed below with their current dividend yields for review:

1.Company: Taiwan Semiconductor Manufacturing Co Ltd (TSM)
Current Dividend Yield: 4.18%
Sector:Semiconductors
Country: Taiwan

2.Company: Chunghwa Telecom Co Ltd (CHT)
Current Dividend Yield: 5.58%
Sector: Telecom
Country: Taiwan

3.Company: Philippine Long Distance Telephone Co (PHI)
Current Dividend Yield: 6.78%
Sector: Telecom
Country: Philippines

4.Company: Huaneng Power International Inc (HNP)
Current Dividend Yield: 6.81%
Sector:Electric Utilities
Country: China

5.Company: Telekomunikasi Indonesia Tbk PT (TLK)
Current Dividend Yield: 4.47%
Sector: Telecom
Country: Indonesia

6.Company: China Yuchai International Ltd (CYD)
Current Dividend Yield: 3.14%
Sector:Capital Goods
Country: Singapore

7.Company: City Telecom (HK) Ltd (CTEL)
Current Dividend Yield: 7.54%
Sector: Telecom
Country: Hong Kong

8.Company: China Mobile Ltd (CHL)
Current Dividend Yield: 3.98%
Sector: Telecom
Country: Country: Hong Kong

9.Company: United Overseas Bank Ltd (UOVEY)
Current Dividend Yield: 4.44%
Sector: Banking
Country: Singapore

10.Company: PetroChina Co Ltd (PTR)
Current Dividend Yield: 4.13%
Sector: Oil and Gas operations
Country: China

Note: Dividend yields noted are as of September 16, 2011

Disclosure: No Positions

Update:

Bloomberg: Record Dividends Lure Morgan Stanley to Asia