Electricity Demand Continues to Grow in China

Posted by on

The demand for electricity continues to grow in China as surging economic growth creates a rising middle-class. With the largest population in the world, naturally the growing number of middle-class Chinese consume more energy. This is especially true with electricity since higher sales of consumer electronics, household appliances increases power demand. In addition to demand from consumers, China’s industrial sector also drives the demand for electricity higher.

Ever since China opened its economy to free-market reforms, the country has become:

  • The second largest energy consumer in the world.
  • The 3rd largest importer of oil.
  • The largest producer and consumer of coal.

The chart below shows the growth rate of per capita GDP and electricity consumption in constant 200 dollars:

Click to expand

Source: Electricity-Economy Interactions: Implications for Electricity Policy and Pricing Reform in China, Ismail O.Soile, Fountain University, Osogbo, Nigeria

Coal remains the major source of fuel for China’s electricity generation followed by hydro power. Nuclear and other sources of electricity account for rest of the total capacity as shown in the graph below:

Source: Energy Information Agency

The EIA site notes:

“The Chinese government has made the expansion of natural gas-fired and renewable power plants as well as electricity transmission a priority”.

From an investment perspective, China’s growing demand for electricity presents investment opportunities in Western companies that supply the technology, equipment and natural resources to China. Australian coal mining companies are the major suppliers of thermal coal to China. Last year Australia’s Resourcehouse signed a $60 billion deal to supply 30 million tons of coal a year for 20 year to China’s power stations. This deal was the biggest ever export contract signed by an Australian firm at that time. Other global firms such as Germany’s Siemens (SI), USA’s General Electric (GE) and France’s GDF Suez (GDFZY) and Areva have large presence in the Chinese electricity market.

Disclosure: No positions

Latin America’s Trade With China Grows

Posted by on

China is becoming a major trade partner with many Latin American countries. China’s main interest in the region include natural resources such as oil, iron ore and agricultural commodities such as soyabeans. Latin American countries’  trade with China increased tenfold in the period 2000-2007. However the U.S. is still the largest trade partner with Latin America. China’s trade in Latin America accounted for just one-fifth of that of the U.S in 2008. Currently China´s major trading partners in the region are Brazil, Mexico, Chile, Argentina and Peru.

The chart below shows total trade of Mexico, Brazil and Chile with China:

Click to enlarge

Total trade from Brazil, Chile and Mexico to China has increased for many years now and continues to move up.

The chart below shows the total trade of Brazil, Chile and Mexico with U.S.:

Total trade of the three Latin American countries with the US has decreased in the period shown and the trend is downward sloping. It must be noted however, Mexico’s trade with the US is still very large representing 65% of all trade.

From an investment strategy perspective, one way to gain from China’s economic growth is to invest in some of the miners and agricultural producers in Latin America.

Source: Who Influences Latin American Stock Market Returns? China versus USA, International Research Journal of Finance and Economics

The Top 10 Italian Companies By Market Cap

Posted by on

** For the latest t0p 10 companies go to:

The Top 10 Italian Companies By Market Cap 2016

******

The table below lists the Top 10 Italian companies based on Market Capitalization including the ADR ticker if available:

[TABLE=1029]

Source: Financial Times

Intesa Sanpaolo SpA (ISNPY), UniCredit SpA and Assicurazioni Generali SpA (ARZGY) can be avoided due to the ongoing debt crisis. Telecom Italia SpA(TI),Enel Spa(ENLAY), ENI Spa(E) have dividend yields of 6.98%, 6.91% and 6.28% respectively.

Disclosure: No Positions

Why Italy is Lagging Behind?

Posted by on

Italy is making headlines in the past few weeks after the Greek crisis settled down at least temporarily. Part of the PIIGS list of countries, Italy has the second highest debt load at 119 % of the GDP while Greece leads the Euro zone at 142% of GDP.

The population of Italy is about 61 million and the size of the economy is about $1.7 Trillion in 2010. The country is highly divided between the prosperous North and the poor South. The CIA World Factbook notes the following on the Italian economy:

Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with high unemployment. The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises, many of them family owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 15% of GDP.

Italy lags other European nations in many areas. The following are some of the reasons why Italy finds itself in the current fiscal crisis situation:

  • In the past decade, Italy has suffered from low economic growth, weak productivity, and declining competitiveness.
  • Among OECD countries, Italy has one of the lowest level of educational attainment in Italy.
  • Italy’s excessive regulation hurts economic growth especially in parts of the service sector which remains highly protected from competition. For example, last year’s New York Times article Is Italy Too Italian? noted that an economics professor lamented on how he was charged 20 Euros by a taxi driver before he even started the ride to the Milan airport from his home. This type of daylight robbery occurs in Italy due to arbitrary rules set by the local taxi association which has a monopoly on the local market.
  • An economy dominated by small and medium-sized enterprises, which are unable to exploit economies of scale in this age of globalization and race to the bottom.
  • The tax burden is one of the largest in OECD but public expenditure is highly inefficient, especially in the South.
  • The Italian judicial system is notorious for corruption and inefficient.The time to resolve civil cases is the longest in all OECD countries.
  • Scientific innovation is few and far with R&D investment one of the lowest in the OECD area.
  • The large regional disparities in terms of per capita income as well as labor market performance, in particular between the developed Center-North and the lagging South. The per capita GDP in the South is almost half of that in the North.
  • Italy’s market share in world trade has declined significantly since the mid 1990s.
  • Despite substantial improvements over the past decade, Italy’s labor market performance still lags behind other EU economies.

Source: Italy: Selected Issues, IMF, July 2011

Update:

1. Currently Italy spends $3.6 billion annually on a fleet 86,000 official cars. Under a new law, only the President and four other national leaders will get high performance cars courtesy of the state. (Source: Bloomberg BusinessWeek)

2. Italian lawmakers are among the highest paid politicians in Europe. In 2010, members of the lower house earned an average gross salary of more than $196K which is nearly double of that of U.K. lawmakers’ salary. In addition, politicians in Italy get free lodgings in Rome, flights and even taxpayer-subsidized haircuts. (Source: The Wall Street Journal)

Related ETF:
iShares MSCI Italy Index (EWI)

Disclosure: Long EWI