Ten Reasons to Invest in Norway

Posted by David Hunkar on 13 June 2010, 8:14 am

Norway is small country with a population of about 4.8 million bordered by Sweden, Finland and Russia. Unlike the American Dream which consists of owning a McMansion in the suburbs, the Norwegian Dream consists of owning two housesÂ â€“ one for living and the other for leisure with a cottage or cabin by sea or in the mountains. Norway’s fortune turned ever since oil was discovered in the North Sea in the late 1960s. Today Norway is the third largest exporter of natural gas, the fourth largest exporter of oil and the second largest exporter of fish in the world. The country consistently ranks high in many global rankings such as Global Competitiveness Index, Human Development Index, etc.

Some of the reasons to invest in Norway are:

1. Norway is a surplus country. The budget surplus last year was 11% of its GDP.

2. Oil and natural gas accounts for about 1/4^th of the GDP. Hence the price of oil has a strong impact on the economy. Surplus oil revenue is saved into a sovereign wealth fund that is the second largest in the world with assets of over NOK 2.1 Trillion. Unlike the Persian Gulf countries and UK, Norway does not squander its petroleum wealth by wasteful spending.

GDP Chart

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3. Among the developed countries, Norway has the second highest GDP per capita next to Luxembourg at $52,000 per person.

4. The unemployment rate stood at 3.5% in March this year, the lowest among OECD countries.

5. Norwegian banks are highly regulated and did not get involved heavily in the sub-prime mess. The banking industry also represents just 2% of the countryâ€™s GDP.

6. Norway consistently attracts strong foreign investments.Â The energy sector especially draws the most amount of FDI and the countries with the largest FDI are Sweden, USA, UK, Denmark and the Netherlands. In addition, foreign investors hold the second largest ownership positions in listed Norwegian companies second only to the Norwegian government.

7. The government is the largest shareholder in many of the largest companies such as fertilizer maker Yara International (OTC:YARIY), banking group DnBNOR (OTC: DNBHY), aluminum maker Norsk Hydro (OTC: NHYDY), telecom provider Telenor (OTC: TELNY) and oil company Statoil(STO). The largest stocks on the Oslo Stock Exchange are Statoil, DnB NOR, and Telenor.

8. Similar to Canada and Australia, Norway is unique in the sense that it is a developed country with an emerging market type commodity-based economy primarily consisting of oil, metals, fertilizer and seafood.

9. The Norwegian market has performed well since 1900 with an annualized real return of 4.1% per year. Based on P/E ratios Norway looks cheaper. The P/E for Norway is 13.9 compared to 18.0 for Canada, 15.5 for Australia and Germany, 18.8 for Finland, etc.

10. Norway is not part of the European Union and hence is not a member of the European Monetary Union whose members have Euro as their currency.

How to invest in Norway?

Unfortunately there is no country-specific ETF for Norway. However one can gain exposure to Norwegian equities by owning Global X FTSE Nordic 30 ETF(GXF) which has 18% of portfolio invested there. Some of the top holdings of this ETF include Statoil, Telenor and DnB NOR.

Another way to invest in Norwegian stocks is via ADRs. Oil and gas producer Statoil(STO) and oil equipment servicer and distributor Acergy(ACGY) are the only two exchange-listed stocks. A few other companies such as Yara International (OTC: YARIY), Orkla (OTC: ORKLY) trade as sponsored ADRs on the OTC market. The full list of Norwegian ADRs can be found here.

Sources:
Credit Suisse Global Investment Yearbook, 2010
Thriving Norway Provides an Economics Lesson
http://www.nortrade.com
Statistics Norway

Year-to-Date Performance of Foreign Bank Stocks

Posted by David Hunkar on 12 June 2010, 1:52 pm

The chart below shows the year-to-date performance of US-listed foreign bank stocks:

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Notes:

1. Canadian banks are excluded in the chart
2. Data shown is as of June 11, 2010

Royal Bank of Scotland(RBS) is the best performing ADR with a return of about 33%. However it must be noted that RBS did a reverse stock split in the ratio of 20:1 in late 2008. The ADR price after the split came to around $20. Despite the rally last year, the current price of the stock is $12.45. Chilean banks Banco de Chile(BCH) and CorpBanca(CIB) have dividend yields of 6.37% and 7.92% respectively.

The worst performing banks are from Greece, Spain and Ireland. Allied Irish Banks (AIB), Bank of Ireland (IRE) and National Bank of Greece (NBG) trade under $ 5 per share. Beaten down Spanish banks Banco Santander (STD) and Banco Bilbao Vizcaya Argentaria (BBVA) may be long-term picks at current levels. Last month, the Spanish government approved a 15 billion euro package of austerity measures which includes lowering civil servants pay, freezing pensions, etc.

Yesterday The Wall Street Journal reported: “The long-awaited consolidation of dozens of Spain’s troubled regional banks picked up speed as two of the larger players said they were in talks on a deal with several other banks that would form the nation’s third-biggest financial institution.

Caja Madrid said Thursday it was negotiating with Bancaja, based in Valencia, plus five other savings banks as talks among Spain’s 45 cajas gained momentum. So far, 35 of these banks, which have been hit hard by the real-estate downturn, have said they are in merger talks.”

Consolidation in the Spanish banking industry bodes well for the future.In addition, banking giants Banco Santander andÂ BBVA have large exposure to Latin American markets.

Mark Mobius: The Flight to Safety into Emerging Markets has already begun

Posted by David Hunkar on 12 June 2010, 10:18 am

Emerging market guru Mark Mobius, manager of the Templeton Emerging Markets Investment Trust says that the flight to safety into emerging markets has already begun as the demand for guaranteend income from investors gains momentum.

According to a news report, Mark said the following:

The movement into emerging markets could take some timeÂ as investors are still worried about volatility
The key attraction in emerging markets is their high growth rates
The stock market is the leading indicator of growth but other factors such as Purchasing Managers Index are important as well
Nigeria, Pakistan, Thailand offers some interesting investment opportunities
Despite the World Cup, the South African economy will experience an exciting growth rate as other emerging markets
In EasternÂ Europe, Poland and Turkey are top picks

Related ETFs:

iShares MSCI Emerging Markets ETF (EEM)
Vanguard Emerging Markets ETF (VWO)