A Review of Egyptian ADRs and ETF

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pyramid-150×150.jpgThe situation in Egypt continues to unfold with President Mubarak dismissing his government today. As a result of the unrest, Egyptian equities have performed poorly so far this year. The stock market crashed 10% yesterday following another 6% fall the day before.  The EGX 30 Index is down about 21% YTD.

The only country-specific ETF  for Egypt is the Market Vectors Egypt Index ETF (EGPT). The ETF fell another 3.40% today on heavy volume. As of January 27th, the fund is down about 17% for the year. This ETF has a very small asset base of just $11.7 million.Out of the 29 holdings, the top three are Commercial International Bank Egypt, Orascom Construction Industries and Orascom Telecom Holding. Financials constitute about 46% of the portfolio.

The five Egyptian ADRs trading on the OTC markets in the U.S. are listed below:

1. Commercial International Bank (CIBEY)
YTD Change: -24.13%
Current Stock Price: $6.32

2.Orascom Construction (ORSCY)
YTD Change: -27.14%
Current Stock Price: $36.25

3.GB Auto S.A.E. (GBAXY)
YTD Change: -10.85%
Current Stock Price: $33.36

4.Lecico Egypt (LECIY )
YTD Change: -0.34%
Current Stock Price: $2.91

5.Remco Tourism Villages(RMTVY )

Related Links:

1. The Egyptian Stock Exchange

2. The Complete List of Egypt GDRs

3. Yahoo Finance – Egypt CMA General Index

4. Market Vectors’ The Egypt Index ETF official site.

5. EGX 30 Index Constituents list

6. Egypt Country Info at CIA’s The World Factbook site.

PFC Energy: The World’s Top 50 Listed Energy Firms 2010

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The global energy consultancy PFC Energy has published the annual ranking of the world’s largest energy companies for 2010. The table below shows the top 25 firms:

[TABLE=876]

Source: PFC Energy

Note:

Market cap data is as of 12/31/2010.

* Prior listings ranked BHP-Billliton based on total market capitalization; this year the company is ranked by the estimated value of its E&P component based on reserves and production.

Some observations:

  • U.S oil giant ExxonMobil(XOM) retains the top position with a market cap of $368.7 billion.
  • Since PetroChina’s (PTR) market cap fell by 14% last year it fell to the second rank.
  • Brazil’s Petrobras (PBR) has jumped from 27th rank in 1999 to 3rd rank last yea. So its market cap has grown at compound annual rate of 27%.
  • Colombia’s state-owned Ecopetrol(EC) posted impressive market cap gains in 2010 propeling the company to the 13th spot. Accordingly Ecopetrol’s ADR soared from about $24 in January 2010 to close the year at about $44.

The complete list of the PFC Energy 50 can be found here.

Disclosure: Long PBR, EONGY

U.S. Smallcaps and Midcaps Outperform Largecaps

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Generally small and mid-cap stocks perform better than large cap stocks due to the higher risk involved in them. Small and midcaps can be extremely volatile and are not suited for all investors. However instead of picking individual stocks, one simple way to gain gain exposure to them is via ETFs. A recent article in the Journal notes that smallcaps and midcaps have outperformed large caps in the last decade but their valuations look stretched after this great run up. Large caps look attractive at current levels.

From the article:

The S&P 500 has gained just 14.1%, including dividends, over the 10 years through Friday, and remains more than 20% off its 2007 high. The S&P 400, meanwhile, has surged 72% over the past decade, and traded at 939.56 on Monday, its highest ever. The S&P SmallCap 600 has jumped 77% during the period.

mid-large-caps.jpg

Source:The Wall Street Journal

In 2010, small and midcaps yielded double the total returns of S&P 500.

Related ETFs:
SPDR S&P 500 ETF (SPY)
iShares S&P SmallCap 600 Index Fund (IJR)
iShares Russell 2000 Index Fund (IWM)
Vanguard Small-Cap ETF (VB)

A complete list of Smallcap and Microcap ETFs can be found here.

Disclosure: No Positions

Withholding Tax Rates by Country for Foreign Stock Dividends

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****** UPDATE ****:

For the 2021 tax rates go to: Dividend Withholding Tax Rates By Country 2021

One of the factors that investors need to consider when investing in foreign stocks is taxes since it reduces the effective rate of return on an investment. Governments of most countries try to recoup millions in taxes from dividends that are paid to foreign investors by companies located in their countries. For example, when a U.S.-based investor invests in France Telecom (FTE) ADRs, the French government will deduct 25% in taxes on all dividends paid. Hence though TEF currently has a 6.98% dividend yield, the actual yield that this investor receives will be less. However the IRS allows a foreign tax credit (filed with IRS Form #1116) to be taken using which this investor can deduct the taxes paid to the French government. This is done to avoid double taxation of dividends. There is a maximum limit to this tax credit.

A few countries do not charge any taxes on dividends paid to foreign investors. So foreign investors receive the entire dividends paid by companies based in those countries. For example, the U.K. charges no taxes on dividends paid by British companies (excluding REITS) to U.S. investors. So an investor in National Gird Plc (NGG) will receive the complete dividends paid at the current dividend yield of 4.68%.

*Companies incorporated in mainland China and listed in Shanghai and Shenzhen. These companies are quoted in Renminbi and are only available to Mainland and Qualified Foreign Institution Investors (QFII).
** Companies incorporated in mainland China and listed in Shanghai and Shenzhen. B-shares in Shanghai are traded in U.S. dollars, while B-shares in Shenzhen are traded in Hong Kong dollars. B-shares are available to mainland and foreign investors.
***Companies incorporated in mainland China and listed on the Hong Kong Stock Exchange.
^Companies incorporated in Hong Kong and listed on the Hong Kong Stock Exchange.

Source: Dow Jones Indexes, Other

Note: Please note that the above information is known to be accurate from the sources used. These rates do not apply to non-U.S. residents. Consult with a tax adviser before making any investment decisions.

Some points to remember before investing in foreign stocks:

1. Germany charges 26.4% tax on dividends only on stocks held in taxable accounts.

Update (2/23/17): Germany charges dividend withholding taxes on stocks held in any qualified retirement account such as a Roth, Traditional IRA, etc.

2. The following countries have tax-treaties with the U.S. which allows favorable treatment of dividends earned by US investors investing in those countries:

Australia, Austria, Bangladesh, Barbados, Belgium, Canada, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Latvia, Lithuania, Luxembourg, Mexico, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Kingdom, and Venezuela.

Source: The IRS

Without the tax treaties U.S investors will pay higher taxes. The Netherlands has a statutory tax rate of 25%. But due to the special tax treaty with the U.S., American investors in Dutch companies are charged only 15% as shown in the table above.

3.  It is generally not advisable to hold foreign dividend-paying ADRs in IRAs and other non-taxable accounts since one cannot recover the taxes paid to a foreign country.

4. Canada charges a 15% tax on dividends held in non-taxable accounts. But due to a policy change in 2009, dividends and interest income are exempt from this 15% tax if the investments are held in IRA or 401(K) accounts. So U.S. investors can hold Canadian banks such as bank of Novo Scotia (BNS), Royal Bank of Canada(RY) or other dividend-paying stocks like Enbridge (ENB)  in their IRAs for the long-term without worrying about taxes on dividends.

5. Though the above table shows that Chile has a 35% withholding tax rate, in my personal accounts the depository has deducted only about 22% in taxes on my Chilean dividends. This could be due to any recent change in Chilean tax laws.

For more information about U.S. tax treaties with other countries refer to the Publication 901 on the IRS web site.

Click to download:

  1. Withholding Tax Rates by Country (as of Feb, 2013) document in pdf (Source: Dow Jones Indexes).
  2. Withholding Tax Rates by Country (as of March, 2012) document in pdf (Source: Dow Jones Indexes).
  3. Withholding Tax Rates by Country (as of Sept, 2010) document in pdf (Source: Dow Jones Indexes).

Also checkout:

Disclosure: Long BNS, RY

Small Investors and the U.S. Equity Market

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Jason Zweig wrote an interesting piece titled “Will Small Investors Ever Warm Up to Stocks Again?” in The Intelligent Investor column of The Wall Street Journal. From the article:

For millions of Americans, spare cash is a lot scarcer than it was in the days when unemployment ran at 6% and home-equity loans made houses ring like cash registers. “Those [money managers] who have been buying are looking for the greater fool to take them out, and the greater fool has always been the little guy,” says Charles Biderman, TrimTabs’ chief executive. “But maybe the little guy doesn’t have the money this time to play the greater fool.”

It has been ages since stocks nearly doubled and investors didn’t give a darn. In early 1948—nearly two decades after the Crash of 1929—the Federal Reserve surveyed 3,500 investors nationwide about their attitudes toward stocks. Only 5% were willing to invest in equities, and 62% were opposed. Asked why, 26% said stocks were “not safe” or “a gamble.” Just 4% felt that stocks offered a “satisfactory” return.

Even after stocks had doubled over the preceding five years, the wounds of the Great Crash still hadn’t healed.

It could be a long slog, again, before today’s small investors forgive the market for the pain it inflicted on them. After the 2008-09 bear market and the flash crash of May 6, 2010, when the Dow dropped 583 points in roughly five minutes, “a lot of people have said, ‘Never again,'” says Morningstar analyst Kevin McDevitt.

I think when comparing the small investor’s apathy towards the stocks market in 1930s and 40s and now one has to take into consideration several other factors that Jason did not include in his article. While it took a few decades back then for small investors to be attracted to stocks again, investors today may have no choice but to return to the equity markets since they are the only “game in town” that can earn decent returns compared to other investments. They returned in droves to the market after the dot-com crash.

For example, the 1-year and 5-year returns on bank CDs are a puny 1.03% and 2.27% according to the latest Bankrate data. Similarly U.S. treasury bonds yield 0% and 2.125% on the 1-year and 5-year bonds. These yields are nowhere near what investors expect in order to keep up with price increases of many goods and services. Prices of basic necessities such as food, gasoline, healthcare, banking and others have increased in recent months. At the same time it must be noted that the average wage of U.S. workers in the private sector has been flat to down for many decades.Workers in the public sector have not been affected as much by these increases since they get cost living allowances in addition to higher pay and other luxurious benefits.

Another factor that we need to consider is how people save for retirement. In the 1930s and 1940s the majority of workers were covered by pensions paid by their employers. That is not true today. Most U.S. companies have eliminated the usual pensions and replaced them with defined contribution plans involving 401-K and other retirement vehicles. Hence workers have no other option to save for retirement other to sign up with one of the 401-K and other plans. These plans invest their funds in equities mostly. Though they also have options to invest in bond funds, most of the funds go into equities as companies push equity funds offered by their 401K providers. Small investors may switch to bond funds in the short-term but they will return to equities as the returns become appealing when the market takes off and investors desire above-average returns.