Ten Italian Stocks Offer Potential Investment Opportunities

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The Italian equity market is one of the hardest hit markets in the world this year due to the European debt crisis and Italy’s own fiscal crisis that came to the forefront of investors’ attention this week. The FTSE MIB, Itlay’s benchmark equity index is down well over 20% YTD. However with the current Prime Minister Silvio Berlusconi finally stepping down and a new government led by Mario Monti taking shape, the current crisis will be contained and the economy may grow again. With the third-largest economy in EU and the eighth largest in the world, many Italian companies offer long-term investment opportunities.

Ten Italian stocks trading on the US markets are listed below for review:

1.Company: Eni SpA (E)
Current Dividend Yield: 6.63%
Sector: Oil & Gas – Integrated

2.Company: Enel SpA (ENLAY)
Current Dividend Yield: 6.12%
Sector: Utility

3.Company:Telecom Italia SpA (TI)
Current Dividend Yield: 7.33%
Sector: Telecom

4.Company: Snam Rete Gas SpA (SNMRY)
Current Dividend Yield: 7.54%
Sector: utility

5.Company: Autogrill SpA (ATGSY)
Current Dividend Yield: N/A
Sector: Food &Drug Retailer

6.Company: Saipem SpA (SAPMY)
Current Dividend Yield: 2.05%
Sector: Oil Well Services & Equipment

7.Company:Saras Raffinerie Sarde Spa (SAAFY)
Current Dividend Yield: N/A
Sector: Oil Well Services & Equipment

8.Company: Atlantia SpA (ATASY)
Current Dividend Yield: 7.29%
Sector: Highway operator

9.Company:Luxottica Group SpA (LUX)
Current Dividend Yield: 2.19%
Sector: Medical Equipment & Supplies

10.Company: Benetton Group SpA (BNGPY)
Current Dividend Yield: 6.73%
Sector: Apparel/Accessories

Disclosure: No Positions

One Year U.S. Interest Payments on National Debt

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The current US National Debt is over $14.8 Trillion. Much of this debt is owed to U.S. residents. Among the external creditors, China is the largest holder of U.S. debt.

The U.S. spends a large portion of its budget each year in the form of interest payments  to service the huge debt load. The following chart shows that the U.S. spent $414.0 billion on interest payments in 2010 which is higher than the amounts spent on many Federal departments. One can argue that the high interest expense deprives the U.S. from funding education, innovation , science and technology, healthcare, infrastructure and other important programs.

Source: The Heritage Foundation

The 50 Safest Emerging Market Banks 2011

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The Global Finance magazine has published its first-ever ranking of the Safest Banks in Emerging Markets. While the banking industry in the developed world is struggling to gain some credibility, investors are increasingly focusing their attention on emerging market banks which are much more risk-averse and have better potential for growth. In fact, many developed banks such as HSBC plc (HBC), Bank of Nova Scotia (BNS), etc. are expanding their operations in emerging countries to earn higher profits.

From the Global Finance report:

We evaluate the ratings and total assets of the main players in developing economies to create the rankings—providing an overview of the key banks in each region and which financial institutions offer the greatest security. Winners were selected through an evaluation of long-term credit ratings—from Moody’s, Standard & Poor’s and Fitch Ratings—and total assets of the 500 largest banks in emerging markets.

The rankings clearly show the ever-growing dominance of China’s banks both within Asia and throughout the emerging markets. Chilean and South Korean banks also feature prominently in the rankings, as do those of Kuwait, Saudi Arabia and the UAE.

The Safest Emerging Market Banks 2011:

[TABLE=1048]

Banco de Chile(BCH) and Banco Santander-Chile (SAN) currently have dividend yields of more than 4%. In spite of turmoil in global equity markets since the Global Financial Crisis (GFC) both the banks have performed very well. An investment of $10K five years ago in each bank would have grown to over $28K and $19K respectively according to S&P data.

Though many South Korean banks are present in this list, they are average to poor performers and hence they can be avoided. It is interesting to note that none of the banks from India, Brazil and Russia made it to this ranking.

In August 2010, I mentioned Czech-based Komercni Banka(KMBNY) in an article on foreign bank stocks trading on the OTC market.

Disclosure: Long BCH

Comparing Exports of Goods Among BRICs

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Brazil, Russia, India and China vary widely in terms of goods exports as shown in the following graph.

Manufactured goods form a major portion of goods exports for China and South Korea compared to agricultural products, fuels and minerals. Russia’s goods exports is dominated by crude oil and natural gas. India is also a large exporter of manufactured goods exports relative to the other two types.

Source: Brazil as a commodity exporter – opportunities & risks, Markus Jaeger, Deutsche Bank Research

Among the BRICs, Brazil has a more diversified export base even within commodities. Hence Brazil can be called as a “diversified commodity exporter”. After the EU, China remains the largest export market for Brazil accounting for about 15% of total exports.

The general belief among investors that Brazil is a pure “commodity play” is simply not true. Manufactured exports represent about 40% of total exports.

From the Deutsche Bank Research article:

Food and agricultural raw materials make up 2/5 of its goods exports. Brazil is the world’s leading exporter of soybeans, poultry, beef, orange juice, coffee and sugar. The top five export products in terms of value are iron ore, oils & fuels, transport equipment (aircraft), soy and sugar & ethanol. Moreover, Brazil’s agricultural potential is huge. Its potential arable land is estimated at over 400m hectares (FAO), but only 50m are currently being used, and Brazil has more spare farmland than the next two largest countries combined.

Similarly, the recent discovery of so-called “pre-salt (oil) deposits” has the potential to propel Brazil from 15th to 5th place in terms of proven reserves. It will, if successfully exploited, transform the country into an important oil exporter – and provide the government and the economy with a significant revenue windfall. This offers a huge opportunity to accelerate economic development, provided the windfall is spent wisely by investing in education and infrastructure and provided the country can avoid “Dutch disease” related problems. In short, Brazil is very well positioned to benefit from what may be a longer-lasting shift in the global economy: the economic rise of populous and relatively resource-scarce countries such as China and India.

From an investment point of view, Brazil is a better destination than other BRIC countries for some of the reasons mentioned above.

Related ETFs:
PowerShares India (PIN)
iShares S&P India Nifty 50 (INDY)
iShares MSCI Brazil Index (EWZ)
Market Vectors Russia ETF (RSX)
iShares FTSE/Xinhua China 25 Index Fund (FXI)
iShares MSCI Brazil Index (EWZ)

Disclosure: No Positions