Household Debt, Gross Domestic Savings: China Vs. Other Countries

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The U.S. personal savings rate as a percentage of disposable income stood at about 4% at the end of 2009. The last time the savings rate exceeded 10% was in 1984. Compared to most other countries, the US has the lowest personal savings rate in the world.

Household debt as a percentage of GDP and Gross Domestic Savings as a percentage of GDP in China and other countries:

Click to Enlarge

China-US-Household-Debt-Savings

The household debt is the third lowest and the savings rate is the highest in China.The Chinese have traditionally saved a large portion of their household income for the future since social security after retirement is non-existent in China. While high savings rate is good for the country in the long-run, in the short run domestic consumption remains weak as consumers save more their money instead of spending. Since the savings rate is high, it is a challenge for the Chinese government to convert the export-driven economy to domestic consumption based.

Unlike in the US, the concept of borrowing and spending is not readily accepted by most Chinese. Hence the number of credit cards in circulation is still very low in China. Compared to the US market, there were only 186 million credit cards in circulation in China at the end of 2009.This figure is very less since the population of China is much higher than the US and the Chinese middle class alone exceeds the population of the US. The credit card market in China is projected to grow at an annual rate of over 30% over the next four years. As a result of the low penetration rate of credit cards and culture, it is unlikely that increased spending will come from borrowed funds. Instead higher domestic spending will have to come from household savings or incomes.

Overall most Asian countries have lower household debt levels and high savings rates relative to the US and UK.

The Top 10 Credit Card Issuers in the World

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The World’s Top 10 Credit Card Issuers based on year-end 2009 data are listed below:

1. Bank of America (BAC)

2. Chase (JPM) – Had 119.4 million cards in circulation in the US

3. Citibank (C) – Had 92 million cards in circulation in the US

4. American Express (AXP)

5. Capital One (COF) – Holds 6.95% of the US credit card market

6. HSBC (HBC) -Is the sixth largest issuer worldwide and holds just 2.05% of the US market

7. Discover (DFS) – Had 54.4 million cards in circulation

8. Wells Fargo (WFC) – Had 17.3 million cards in circulation

9.  Barclays (BCS)

10. Llyods Group (LYG)

Source:   CreditCards.com and Nilson Report, via CNBC

Except for HSBC, Barclays and Llyods, the rest of them are US-based issuers. While the US credit card issuers enjoyed great growth rates in the pre-credit crisis period, it remains to be seen how they would fare in the “new normal”.

Is the U.S. Stock Market Undervalued?

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According to David Rosenberg of money manager Gluskin Sheff the U.S. stocks market is overvalued by 35% based on Shiller P/E ratios.

The S&P 500 is up 9% YTD and most stocks have recovered strongly since the March lows of last year.The current P/E of S&P 500 is 21. However is this the time to invest in U.S. stocks?

According to an article in MoneyWeek, the current P/E of U.S. stocks is about 22. Historically when the P/E ratio exceeds 20, stock investments have lost money over the next five years. Investor Jeremy Grantham predicts a yearly return of just 0.40% for the next seven years. When inflation is taken into account investors will loose money if they invested in the markets now.

PE-Ratio-Historical-US-Markets

The above chart shows that stocks traded above 20 times earnings before the big crashes of 1929, the late 1960s and 2000.

Another chart from Societe Generale below shows that the cyclically-adjusted P/E of S&P 500 is over 20 now. This ratio is adjusted for economic cycles by taking an average of earnings over the past ten years.

PE-Ratio-of-US-Stocks

Source: US equity bulls are pricing in Nirvana, MoneyWeek

The above charts confirm that U.S. stocks are not undervalued based on the factors noted. Further rise in equity prices have to accompanied by rise in earnings.

P/E ratios have been expanding in other markets as well though earnings have not grown significantly. For example, among the emerging markets, the P/E of BSE 500 stocks in India has shot up from 11.7 times (12-month trailing earnings) in March 2009 to over 20 last month. In 2009, when the total net profits of the BSE 500 companies grew by 30%, their market capitalization increased by 130% showing the irrational exuberance of investors.

Knowledge is Power: Goldman, Western Economies Edition

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China Is Not Helping Its Manufacturers

Western economies too weak for spending cuts, IMF warns

Property Is it time to invest?

China’s property bubble

Mobius Says Demand for Housing in China Will Withstand Bank Lending Curbs

Goldman Sachs only ran the casino

 Address jobs now, deficits later

3 lessons for investing overseas

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Source: Reserve Bank of New Zealand

7 Foreign Telecom Stocks Yielding More Than 6% Dividends

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Telecom stocks can provide some stability and steady growth to a well-diversified portfolio. Some of them also offer high dividends which may be reinvested to increase the total return on an investment. Unlike consumer discretionary and other sectors, consumers in most countries consider telecommunication services such as mobile phone services as a necessity. Telecom companies offer other value-added services to generate higher revenue from each customer.

The following foreign telecom stocks offer more than 6% dividend yields as of April 20, 2010:

1. Telekom Austria AG (OTC:TKAGY)
Austria
Current Dividend Yield: 7.21%

2. Magyar Telecom (MYTAY)
Hungary
Current Dividend Yield: 9.39%

3. Deutsche Telekom AG (DT)
Germany
Current Dividend Yield: 7.68%

4. Telstra Corp Ltd (OTC: TLSYY)
Australia
Current Dividend Yield: 8.92%

5. France Telecom(FTE)
France
Current Dividend Yield: 7.36%

6. Telefonica SA(TEF)
Spain
Current Dividend Yield: 6.26%

7. Telecom Corporation of New Zealand Ltd (NZTCY)
New Zealand
Current Dividend Yield: 10.80%

Note: Information posted above is known to be accurate. Please do your own reasearch before making any investment decisions.