Which is Better for Investment: Chile or Brazil ?

Chile and Brazil are two of the hottest destinations for foreign investors in Latin America. Though Chile has had tremendous economic growth over the last 20 years, Brazil beats Chile in terms of attracting foreign capital. Chile’s economy growth has slowed in recent years.

The chart below shows the performance of Chile Vs. Brazil over the last 10 years:

Chile-Brazil-Compare-10-Years

Source: Trustnet

In the last 10 years, the MSCI Brazil index has grown by 470% while the MSCI Chile index has increased by only 270%. Both the countries performed very well when compared to the MSCI World index which fell by about 5% during the same period.

Despite the strong performance of the Brazilian market, some investors prefer Chile over Brazil. In 2008, during the global financial crisis the MSCI Brazil index crashed over 60% whereas the MSCI Chile index fell only 20%. In addition, the annualized volatility rates for the past 10 years for Chile and Brazil are 16.3% and 25.4% respectively.

However it must be noted that unlike Brazil, Chile is heavily dependent on commodity exports particularly copper. The Brazilian economy is much more diversified compared to the Chilean economy. With a larger population and rising income levels among the middle class, Brazil offers a wide range of opportunities for investors. But since a huge amount of foreign investment dollars is flowing into the country, Brazil is prone to higher volatility. Overall as emerging economies both Brazil and Chile have strong potential for growth but they must be evaluated based on the economic factors unique to each of them.

The iShares MSCI Brazil ETF (EWZ) offers exposure to the Brazilian market. The fund has an asset base of $10.4B and 76 holdings in the portfolio. Investors can access Chilean equities via the iShares MSCI Chile Investable Market ETF (ECH) . This ETF has an asset base of $365.0M and 32 holdings in the portfolio.The difference in net assets between the two ETFs is huge since more investors choose Brazil over Chile.

New ADR: China Lodging Group

Three Chinese hotel chain ADRs have been listed on the U.S. exchanges until now. The last one was the 7 Days Group back in November. That ADR is trading below the IPO price.

The latest IPO in this group is China Lodging Group Ltd (HTHT) which started trading on March 26th in the NASDAQ market. China lodging raised $110.3 million by pricing 9 million ADRs at $12.25 a share. As the end of last year the company had 236 hotels with 28,360 rooms in 39 cities across China. Founded in 2005, the chain has expanded steadily and has developed a loyal membership base with more than 1.5 million individuals and 84,000 corporate members. On the first day its shares rose 12%.

Key Stats from the corporate site:
Occupancy Rate: 94%
Hotels in Pipeline: 144
Number of brands : 3

More information can be found in the company’s investor relations site.

According to a Reuters report, the Chinese hotel industry is posting rapid growth but the latest IPO faces economic tightening fears. So investors may want to wait and watch before picking up shares of these hotel chains.

Australian Bank Stocks Offer High Dividend Yields

Australian banks have recovered strongly after the recent financial crisis and are poised to grow further with the economic rebound in Asia.The market capitalization of Australian banks increased by 64% over the past year compared to a 34% increase for the SP/ASX 200 index.

The dividend yield has been returning to normal levels in past few months as the chart shows below. In 2008, the yield rose significantly due to falling share prices and not due to increase in dividend payouts.

After a large decline in the P/E ratio in 2008, the ratio has been steadily expanding since 2009 with rising earnings as shown in the graph below.

Source: Australian Bankers Association

In general, banks in Australia have paid out a higher proportion of their profits in dividends. Last year the total dividend payouts of all Australian banks was A$13.7 billion.

The Australian banks trading in the US as ADRs are listed below with their current yields:

1. Westpac Banking (WBK)
Current Dividend Yield: 4.19%

2. National Australia Bank (OTC: NABZY)
Current Dividend Yield: 5.17%

3. Australia and New Zealand Banking Group Ltd (OTC: ANZBY)
Current Dividend Yield: 4.28%

4.Commonwealth Bank of Australia (OTC: CMWAY)
Current Dividend Yield: No regular dividends paid

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shanghai-bund-view

Shanghai, China

Who are America’s Most Privileged Workers ?

An article in the Wall Street Journal on Friday lays out one reason why many U.S. states are facing deep budget deficit issues. From the article:

“What if government workers earned the average of what private workers earn? States and localities would save $339 billion a year from their more than $2.1 trillion budgets. These savings are larger than the combined estimated deficits for 2010 and 2011 of every state in America.”

In fact America’s most privileged class are the unionized  workers. Private sector workers on the other hand do not get paid great salaries and benefits like the public sector workers. Over the years as private sectors workers faced rising layoffs, wage and benefit cuts, competition from overseas workers brought into the US, off-shoring of jobs, etc. public sector workers have enjoyed job security with rising compensation.

The chart below shows the difference these two class of workers in America today:

US-Private-Public-Workers-Comparison

Some of the interesting points noted in the article include:

  • From 1998 to 2008 public sector employee compensation grew by 28.6% compared to 19.3% for private workers
  • Last year despite the great recession and budget deficits more than half the states gave pay raises to their workers
  • In 2008, for  every $1 received in pay and benefits by a private sector employee, a government worker earned $1.45
  • The pay gap between private and public workers is the widest in states with the highest deficits which include New Jersey, Nevada and Hawaii
  • In California, 3000 retired teachers and school administrators who retired at the early age of 55, receive $100,000 a year in pension payments
  • States such as California, Nevada and Ohio allow workers to retire in their 50s and then get re-hired for the same job and get paid twice – once in the form of retirement checks and the other as the salary for the job. This scam in Ohio allows some teachers in Ohio to earn as high as $200,000 each year

Considering the facts above, it would not be an exaggeration to call some of these states as “failed states” for the inability to reign in on lavish payouts to employees and reckless spending of tax payer money. In addition one can come to the conclusion that in today’s capitalist USA, unless one can get an executive-level job in the private sector with nice golden parachutes it is wise to take a government job whether it is at the state, local or at the federal level. It is a bit ironic that in a country that believes in the virtues of free market capitalism and the private enterprise, the best paying jobs are actually in the government sector.