Is it time to invest in Austria?

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Austrian banks and other institutions are the largest investor in many former communist Central European countries such as Romania, Czech Republic, etc. Since Central European nations are closely tied to Austria both historically and culturally the Austrian cash-rich companies naturally favored them.While it seemed like a strategic move before the credit crunch began, it went horribly wrong since many of these countries’ economies were badly affected in recent times.For example, Hungary went almost bankrupt due to external debt and was bailed out by the IMF with a huge loan. The stock market in these countries also fell hard which in turn affected the Austrian companies. As a result, many of the Austrian banks such as Raiffeisenbanken, Erste Bank (EBKDY) got clobbered badly before the rebound from March lows.Since the economies of the Central Europe have stabilized, banks of Austria and other companies are looking very attractive at these levels. However for American investors the choices are very limited since all the Austrian companies trade on the OTC market. Some of the companies in the OTC market are:

1.Erste bank – EBKDY
2.Telekom Austria – TKAGY
3.OMV – OMVKY

and a few other companies. Most of them are highly illquid. Erste Bank pays a nice dividend of 3.29% and has grown over 200% from the March low of about $4+. Telecom Austria pays a dividend of 7.23% and has a $6B market cap.OMV AG is the oil and gas producer with an yield of 3.63%.The stock is still off from its 52-week high of $85.

The simple and easiest way to get exposure to Austria is to invest via the only country-specific ETF, the iShares MSCI Austria Investable market (EWO). Currently it offers a dividend of 5.70% and has $79M in assets. The expense ratio is 0.52%.

This ETF “seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the Austrian market, as measured by the MSCI Austria Investable Market index.”

The ETF portfolio includes Erste bank, Telekom Austria, Verbund(utility), OMV, Raiffeisenbanken and others. Financials form about 31% of the assets.

German Utility E.ON has Stable Growth and Solid Dividend Yield

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Germany-based E.ON is one of the largest natural gas and electricity producer in the world. The ADR stock trades on the OTC with ticker EONGY.Currently it pays a juicy 5.79% dividend and has a $65B market cap. From its March lows of $22 the ADR has nicely rebounded to close at $35.54 today.

The following are some interesting points pulled from E.ON’s corporate site:

  • E.ON was formed in June 2000 by the merger of VEBA and VIAG, two of Germany’s largest industrial groups
  • E.ON has about 74 GW of installed generating capacity, making us one of the world’s leading power producers.
  • Operate and market an inter-regional gas pipeline system in Germany with a system length of 11,552 kilometers
  • 93,500 employees generated just under EUR87 billion in sales in 2008
  • Electricity and gas sales increased by 26% and 12% in 2008 over 2007
  • The dividend payout amount has increased every year since 2004
  • Since 2004,  yearly dividend payments also increased consistently
  • The 2009 Annual Shareholders Meeting, has approved on May 6, 2009 the cash dividend be increased by 9.5 percent, from EUR1.37 per share for the 2007 financial year to EUR1.50 per share for the 2008 financial year
  • Since the 2003 financial year, the dividend amount has increased by an average of 17.5% per year
  • US and Canadian investors hold 27.4% of all free float stock

Singapore and Malaysia Closed-End Funds

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Singapore and Malaysia used to be hot investment destinations before the current crisis. Malaysia was popular with investors because of its palm oil and other commodities. Singapore on the other hand was known for its off-share banking, trading hub, strong economy, etc. After touching historic highs Singapore and Malaysian funds fell hard in line with the global economic slump.

There are is a closed-end fund that is country-specific for these countries.Closed-end funds are cheaper to invest when they are selling at a discount to their NAVs. Currently these two funds are selling at a discount.However closed-end funds are very volatile during rough market conditions and are not suitable for all investors.

1. Fund Name: Singapore Fund (SGF)
Current Discount to NAV: 12.73%
Fund Size: $83 M

2. Fund Name: Malaysia Fund (MAY)
Current Discount to NAV: 14.01%
Fund Size: $57M

Knowledge is Power: Trickle-Down Economics Edition

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1.In an effort to energize the economy, stimulus checks are being mailed to millions of people. Unfortunately, thousands of the recipients are dead.Memo to the government: Dead people don’t spend

2. Gross domestic product (GDP) in the OECD area fell by 2.1% in the first quarter of 2009, the largest fall since OECD records began in 1960, according to preliminary estimates, and followed a fall of 2.0% of GDP in the previous quarter.GDP in the OECD area fell by a record 2.1% in the first quarter of 2009

3.Luxury carmaker Porsche came very close to bankruptcy in March. Only a dramatic rescue operation saved the company, but it’s still on the skids. Over the coming weeks, the sports car manufacturer — which is up to its hubcaps in debt — could find itself in an increasingly difficult financial situation if it doesn’t swiftly merge with Volkswagen. German Carmaker Narrowly Averts Bankruptcy

4. After former Bear Stearns Cos. trader Guy Irace lost his job on the bond desk a year ago, he moved back to Long Island to teach high school math and dropped 40 pounds. Jack Yang’s deli in Manhattan cut three employees. Bear Stearns to Algebra I Means Lost Dollars in New Trickle-Down Economics

5.Society needs to place a higher value on shame, as it has proven to be a powerful — and necessary — tool, Thomas Kostigen says. The value of shame

Grande Latin America ETF !

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Rio De janeiro

Rio De Janeiro, Brazil

The Grande Latin America ETF is the iShares S&P; Latin America 40 Index Fund (ILF) since it has the 40 largest companies in Latin America as defined by the S&P; Latin America 40 Index.

S&P; Definition for this Index:
“S&P; Latin America 40 represents major economic sectors of Mexican and South American equity markets. It includes highly liquid securities from Mexico, Brazil, Argentina and Chile. ”

ETF Profile:
The largest ETF for the top companies in emerging Latin America is ILF. It has assets of just over $2.0B. ILF gives exposure to four countries and 36 stock. The other for Latin America SPDR S&P; Emerging Latin America ETF (GML) has a tiny asset base compared to ILF.

Some of the largest companies in the ETF are America Movil(Mexico), Petrobras (Brazil), CIA VALE DO RIO DOCE(Brazil), three banks of Brazil – Banxo Badesco, Itau Bank, Unibanc, Cemex and Walmart De Mexico of Mexico.

ETF Strengths:

  • Contains the largest 40 companies in Latin America
  • Financials make up only 16%
  • Management fees of 0.50%
  • Year-To-Date return = -4.74% only

ETF Weaknesses:

  • Since it is for Latin America this ETF’s performance is tied closely to the commodity markets
  • The Top 10 stocks account for about 70% of portfolio.

Overall picking up ILF is a better way to invest in Latin America in this market. Caution is warranted as Latin American markets are not for the faint hearted and commodity markets are very volatile and risky.