10 Foreign Bank Stocks to Consider

Posted by David Hunkar on 8 April 2011, 8:47 pm

Most foreign banks have rebounded strongly since the depth of the credit crisis. Some of them have written off all of the losses and have shored up their balance sheets. Investors who avoided bank stocks in the past few months many want to consider adding some of the stronger banks at current levels. Another round of fresh stress tests planned for European banks in June should further raise confidence in this sector.

Ten foreign banks for review are listed below together with their current price and dividend yields.

1.Bank: Banco Bilbao Vizcaya Argentaria S.A (BBVA)
Current Price: $12.65
Current Dividend Yield: 6.64%
Country: Spain

2.Bank: BNP Paribas SA (BNPQY)
Current Price: $39.42
Current Dividend Yield: 2.36%
Country: France

3.Bank:Westpac Banking Corp (WBK)
Current Price: $128.43
Current Dividend Yield: 5.77%
Country: Australia

4.Bank: National Australia Bank Ltd (NABZY)
Current Price: $27.72
Current Dividend Yield: 5.65%
Country: Australia

5.Bank: Bbva French Bank (BFR)
Current Price: $11.63
Current Dividend Yield: 5.87%
Country: Spain

6.Bank: Nordea Bank AB (NRBAY)
Current Price: $11.67
Current Dividend Yield: 2.92%
Country: Norway

7.Bank: Nedbank Group Ltd (NDBKY)
Current Price: $22.25
Current Dividend Yield: 3.44%
Country: South Africa

8.Bank: HSBC Holdings PLC (HBC)
Current Price: $54.35
Current Dividend Yield: 4.40%
Country: UK

9.Bank: Commerzbank (CRZBY)
Current Price: $7.68
Current Dividend Yield: N/A
Country: Germany

10.Bank: Credicorp Ltd (BAP)
Current Price: $103.60
Current Dividend Yield: 1.89%
Country: Peru

Note: Stock price and dividend data noted above are as of April 8, 2011

Disclosure: Long CRZBY,BBVA

Is Gold the Sponge that Absorbs All Perceived Risks?

Posted by David Hunkar on 7 April 2011, 5:59 pm

Gold prices closed at $1,458.80 an ounce today. The demand for gold continues to rise as investors seek shelter from volatile equity markets. According to The Wall Street Journal, despite record high prices the price of gold is still below the inflation-adjusted price of $2,348.21 reached in 1980. Gold prices have increased by 146.58% in the last five years in US dollar terms.

Investors have poured billions into physical gold and other gold-related assets in recent years. For example, the SPDR Gold Shares ETF(GLD),the largest gold ETF in the world holds 1,217 tonnes of the yellow metal in its trust valued at over $57.0 billion.

In spite of the rise in gold prices in recent years, Emmanuel Painchault, deputy director and head of commodities and infrastructure, at Edmond de Rothschild Asset Management believes that gold prices will rise further. From an interview in The Asset magazine of Hong Kong:

What do you forecast for 2011?

The start of the year saw two trends. After ending 2010 on a high note (USD1,421/oz), gold price corrected quickly to USD1,313.9/oz in less than a month. It has since rebounded above USD1,400/oz and even reached a new nominal high of USD1,444.95/oz on March 7 2011. This is because the excessive public debt in developed countries does not militate for higher interest rates; the economy has improved but it remains fragile. Besides, inflation is clearly looming: oil is back above USD100/ barrel and soft commodity prices are above their highs seen in 2007 and 2008 when food riots broke out.

These factors contradict the consensus view at the start of 2011 that we would enjoy an inflation-free recovery, which meant that real interest rates could be soon on the rise. In fact, we might stay in a low interest rate environment for longer than expected and in any case, if interest rates were to be raised, it would be to fight inflation. The net effect is that real interest rates are set to stay low -and even negative, as is currently the case in the US — and this has always been bullish for gold prices.

Gold is a safe haven, and the rebound in its price has also been driven by the current upheaval in North Africa and the risk of contagion in other countries like Algeria and Morocco. It will eventually abate, but there will be other geopolitical events that will take the price of gold higher. Our world is certainly not as safe as we previously thought.

Gold is a sponge that absorbs all the perceived risks on this planet, whether they are financial or geopolitical.

Many gold bulls would agree with Emmanuel’s views on gold. Gold prices may continue to rise over the long-term with occasional downs. Some expect prices to reach $2,000 an ounce soon. In an interview last year investment guru Jim Rogers mentioned that he plans to own gold till it reaches $2,000 an ounce.

Update: MoneyWeek article The next big driver of gold’s bull market â€“ China’s middle classes notes that in addition to rising Chinese demand for gold, demand is outstripping supply for many years now as shown in the chart below:

Disclosure: No Positions

Another Take on Why Diversification is Important

Posted by David Hunkar on 6 April 2011, 11:00 pm

In an earlier post we reviewed about why diversification matters in building a portfolio. In this post let us take another look at a two charts that show the importance of diversification across various asset classes and sectors.

The period table of investment return below shows the performance of various asset classes from 1991 to 2010:

Click to enlarge

At the depth of the Global Financial Crisis(GFC) in 2008, emerging markets fell 41.4% and BRIC equities crashed almost by 50%. However U.S. large caps fell just 21.4% and U.S. bonds were the best performers with a return of 31.6%. In four out of the five prior to 2008, BRIC equities were the top asset class earning high double digit returns each year.

Note: All returns noted in the above chart are in Canadian $ terms.

In addition to diversifying across various asset classes as noted above, it is also essential to diversify across sectors. Since top performing sectors rotate in and out of favor, this strategy will help an investor to avoid predicting which sector will be the winner each year.

Source: Why Diversify?, Franklin Templeton Investments

Related ETFs:
Vanguard Emerging Markets ETF (VWO)
SPDR S&P 500 ETF (SPY)
SPDR STOXX Europe 50 ETF (FEU)

Disclosure: No Positions

Foreign Chemical Makers Offer Investment Opportunities

Posted by David Hunkar on 6 April 2011, 6:04 pm

In the most recent M&A deal in the chemical industry, Belgian chemical and plastics maker Solvay (SVYZY) agreed to buy French speciality chemical maker Rhodia(RHAYY) for 3.3 billion Euros. This represents premium of 50% to Rhodia’s closing price on April 1, 2011.Â This is an all-cash deal with Solvay offering 31.60 Euros for each Rhodia share.

Solvay’s footprint in the emerging markets of China, Brazil and India is set to increase with this deal. In addition it will beef up its R&D capabilities and innovation of new products. Solvay’s OTC-listed ADR closed at $12.80 today. While Solvay has paid a rich premium for Rhodia, the deal should benefit Solvay tremendously in the long run since demand for chemicals continues to rise in emerging markets. Investors looking to gain some exposure to the chemical sector may want to add Solvay at current levels.

Unlike other industries, acquirers in chemical sector usually pay a nice premium for their targets. Some of the past notable takeovers include the acquisition of UK’s paint maker ICI by Dutuch chemical giant Akzo Noble (AKZOY) in 2007, Dow Chemical’s(DOW) acquisition of Rohm and Haas in 2008, BASF’s (BASFY) $5B acquisition of Engelhard in 2006 and Swiss specialty chemical maker Ciba in 2008. Dow Chemicals paid a 74% premium to buy Rohm and Haas. Some of the foreign chemical stocks that are available on the U.S. market include Bayer (BYERF),Yara International (YARIY),L’Air Liquide (AIQUY), Braskem (BAK), Syngenta (SYT),Arkema (ARKAY),Nova Chemicals Corp.(NCX),K+S AG (KPLUY) and Linde AG (LNEGY)