Beaten Down Brazil Offers Investment Opportunities

Posted by David Hunkar on 17 August 2011, 6:00 am

The Bovespa Index is down over 20% YTD. Compared to Chile and Mexico, Brazil’s performance has been worse so far this year. However Brazil continues to be the most attractive investment destination in Latin America for foreign investors. For example, Brazil ranked 5th in Foreign Direct Investment (FDI) with about $48 billion flowing into the country according an UNCTAD report. This is a sharp rise from 2009 when the FDI figure stood at $26 billion.

As the largest Latin American country with a growing middle class and rising income levels, Brazil offers strong potential for growth. Brazil’s dependence on commodity exports will adversely affect the country should global commodity prices plunge. However, contrary to popular belief Brazil is increasingly exporting more manufactured goods than just commodities. So the growing domestic economy should makeup for any shortfall in exports.

With most Brazilian equities beaten down, investors with a long-term horizon of five years or more can consider adding some stocks at current levels. To get started, the following is a list of ten stocks from different industries with some offering high dividend yields:

1.Company: Braskem SA (BAK)
Current Dividend Yield: 4.60%
Sector:Chemical Manufacturing

2.Company: Cpfl Energia SA (CPL)
Current Dividend Yield: 5.93%
Sector:Electric Utilities

3.Company: Energy Co of Minas Gerais (CIG)
Current Dividend Yield: 5.66%
Sector:Electric Utilities

4.Company: Vale SA (VALE)
Current Dividend Yield: N/A
Sector:Metal Mining

5.Company: Ultrapar Participacoes SA (UGP)
Current Dividend Yield: 3.30%
Sector:Oil & Gas Operations

6.Company: Petroleo Brasileiro SA Petrobras (PBR)
Current Dividend Yield: 4.28%
Sector:Oil & Gas Operations

7.Company: Embraer SA (ERJ)
Current Dividend Yield: 0.72%
Sector: Aerospace & Defense

8.Company: Copel Companhia Paranaense De Energia (ELP)
Current Dividend Yield: 0.84%
Sector:Electric Utilities

9.Company: Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (SBS)
Current Dividend Yield: N/A
Sector:Water Utilities

10.Company: Companhia Siderurgica Nacional (SID)
Current Dividend Yield: 6.48%
Sector:Misc. Fabricated Products

Disclosure: Long PBR, UGP

Revenue and Expenditure of the U.S. Government 2011

Posted by David Hunkar on 17 August 2011, 4:52 am

Here is a simple chart depicting the Federal Budget for 2011:

Source: Der Spiegel

Income Tax and social security contributions constitute over 50% and 37% of total revenue respectively. With high unemployment ans stagnant wages, this is bound to be under pressure for the foresseable future. With healthcare costs and other expenditures rising, the current deficit of $1.6 Trillion will also increase unless the economy improves and revenues increases.

Unlike Other Developed Countries, Denmark Refuses to Rescue Banks

Posted by David Hunkar on 16 August 2011, 4:00 am

Since the start of the global financial crisis of 2008, most of the developed countries have bailed out distressed banks with taxpayer funds. The U.S. government allows the failure of small and tiny banks but bails out large and TBTF banks by pouring billions in bailout funds with programs such as the now-forgotten TARP program.

The small country of Denmark has been plagued by bank failures in the past three years due to their over exposure to the real estate industry and inability to obtain funding from foreign investors. However the Danish government refuses to rescue the distressed banks. Instead it has followed procedures to encourage consolidation in the industry with the restructuring of the troubled banks. Only the largest creditors and depositors have been forced to take the losses when banks failed. Ordinary depositors are protected by a deposit-guarantee fund created by the industry. The Danish banking sector is set for consolidation by 2013 according to a Bloomberg report.

Denmark has about 130 banks and so far 12 banks have failed. The failed banks are listed below:

Click to enlarge

Courtesy: Zero Hedge

In a report titled “Further Bank Failures Likely In Denmark”, S&P stated last month that 15 more Danish banks could fail this year.

Due to the current policies of the state, the Danish banking industry will suffer in the short-term , but in the long-run it should become healthier as consolidation leads to fewer and stronger banks and the weaker banks are eliminated. This is a smart strategy compared to the ones followed in other developed countries where “zombie” banks are allowed to survive.

In the U.S. three of the large Danish banks – Danske Bank(DNSKY), Jyske Bank(JYSKY) and Sydbank A/S (SYANY) trade on the OTC market as unsponsored ADRs.

Source: CEIC Macro Watch, Europe and Central Asia

Disclosure: Long DNSKY