Correlation Between South African and Australian Equity Markets

Posted by David Hunkar on 20 April 2010, 12:29 am

Global diversification is an integral strategy of a well-built portfolio.It is even more important to make sure that diversification is done right.

Australia is classified as a developed economy and its main stock market index the Australian All Ordinaries Index is part of the MSCI World Index. In contrast South Africa is considered as an emerging market and its main index the All Share Index is included in the MSCI Emerging Market Index.

However the developed market of Australia is highly correlated with emerging market of South Africa. This is because the economy of both these countries are natural-resources based. So investing in these two markets at the same time would not offer the diversification desired by an investor.The following charts proves this point.

Returns of Australia’sÂ All Ordinaries Index Vs. South Africa’s All Share Index:

The graph shows that both the markets track each other almost consistently. Australia has been more volatile but offered better returns especially during the commodity boom from 2003 and 2007.

Correlation between South Africa and Australia:

Source: http://www.equinox.co.za

The table above shows that the Australian All Ordinaries and the South African All Share Index are quite highly correlated to one another.The Australian index has a higher correlation to the MSCI World index than the All Share Index. However both the indices have the same correlation to the MSCI Emerging Market index, which is interesting.

ETFs Performance:

The chart below shows the 5-year performance of the iShares MSCI Australia Index fund (EWA) and the iShares MSCI South Africa Index fund (EZA).

Based on the above analysis it is clear that when choosing different markets for diversification purposes one must choose the right countries.

Some Foreign Bank Stocks Pay No Dividends

Posted by David Hunkar on 18 April 2010, 8:18 am

Traditionally investors have been attracted to utilities and bank stocks their dividends and stable growth. However the past couple of years have shown that many of that financial stocks do not fall in that category any more.

Despite the so-called recovery, some of the foreign banks have not resumed paying dividends.Since dividends come out of profits it is a very good indicator of performance than most other factors. Some of the foreign banks are majority-owned by the government after they were bailed out with billions in capital infusion. Hence these banks are under restrictions to payout dividends to investors even if they earn profits. For example, 84% of Royal Bank of Scotland (RBS) shares is owned by the British government. that amounts to 90.6 billion shares. Similarly 41% of Lloyd’s Bank(LYG) is owned by the government amounting to 27.6 billion shares.Â When these holdings are sold, investors can expect further erosion in share prices from current levels.

The table below lists the current yields of foreign bank ADRs listed in the organized US exchanges:

[TABLE=451]

Note: Information posted above is known to be accurate. Please do your own research before making any investment decisions. Canadian banks are excluded in this list.

Hence investors have to be highly selective when picking up bank stocks. Since most of them have risen significantly from last March’s low, further price increases must be accompanied by higher profits and not just expansion in P/E. It is a good idea to keep an eye on reinstatement of dividend payments from those that don’t pay dividends now and any dividend increases from dividend payers.

Bloomberg BusinessWeek: The 50 Most Innovative Companies 2010

Posted by David Hunkar on 18 April 2010, 7:02 am

The 50 Most Innovative Companies in the world for 2010 has been published by Bloomberg BusinessWeek in the latest issue. This year’s list is dominated by companies from Europe and Asia. Showing the rise of Asian emerging markets, for the first timeÂ 15 of the Top 50 are Asian and Greater China has as many companies in the list as Japan. The majority of the Top 50 are based outside of the U.S.

From the report:

“If Asia ever did figure out how to design cutting-edge products comparable to those dreamed up in the West, however, the one-two punch of high-value research and development and low-cost manufacturing would make it almost unbeatable in the battle for global economic supremacy.

The battle is on. In the 2010 Bloomberg BusinessWeek annual rankings of Most Innovative Companies, 15 of the Top 50 are Asianâ€”up from just five in 2006. In fact, for the first time since the rankings began in 2005, the majority of corporations in the Top 25 are based outside the U.S. Asia’s newfound confidence is turning up everywhere you look, from wind turbines to high-speed bullet trains, just two of the technologies China is trying to export to the U.S. “We are the most advanced in many fields,” Zheng Jian, director of high-speed rail at China’s railway ministry, told The New York Times in April. “And we are willing to share with the U.S.” The U.S., of course, still has its innovators. Apple (AAPL) remains No. 1, followed by perennial first runner-up Google (GOOG). But just ahead of General Electric (GE) in seventh and eighth places are newcomers LG Electronics of South Korea and BYD, with Korea’s Hyundai Motor claiming a spot at 22.

The extended Top 50 list is dominated by companies from Europe, Asia, and, in another first, South America (PetrobrÃ¡s (PBR) of Brazil at No. 41). China’s rise is biggest. A year ago its only representative was PC-maker Lenovo Group (LNVGY), at 46. This year Greater China is tied with Asia’s postwar powerhouse, Japan, thanks to showings by BYD, Haier Electronics (27), Lenovo (29), China Mobile (CHL) (44), and Taiwan-based HTC (47). The age of Asian innovation has begun.” (emphasis added)

The Top 25 Most Innovative Companies in the World: