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Regular posting will resume tomorrow.
1.The European Union is split over how best to apply the lessons of the global downturn to the regulation of financial markets. Countries like Germany want tighter controls on risky deals and exotic securities, but the UK, Ireland and parts of Eastern Europe are fighting for free markets. UK, Ireland Resist Push for More Financial Regulation
2.June 3 (Bloomberg) — The last time Brazil elected a president with a radical past, investors panicked and started bailing out of markets. The year was 2002; the nation’s currency plummeted 60 percent, and its borrowing costs tripled to 24 percent. Bovespa Rebound in Brazil’s Recession Market Makes Lula `My Man’ for Obama
3.Now that U.S. President Barack Obama has accepted Chinese President Hu Jintao’s offer to visit China later this year, there is a huge opportunity for the two countries—both top emitters of greenhouse gases—to collaborate on reducing energy consumption.Building a Greener China
4. The international environment facing Africa has turned decisively negative. GDP in the OECD countries is expected to contract by 4.3 per cent in 2009 and to be virtually flat in 2010. Growth in emerging economies is also expected to slow dramatically.Africa Economic Outlook
5.An SEC rule change has created hundreds of new products for US investors to choose from, but not everyone is happy about being involved. Unsponsored DRs multiply with newfound ease
Spanish banks Banco Bilbao Vizcaya Argentaria (NYSE:BBV) and Banco Santander SA (New) (NYSE:STD) may be avoided for investment now. While both are some of the largest banks in the world, their earnings have been impacted adversely not only due to the recession but also due to some wrong strategic moves. The collapsing real estate market in Spain does not help either.
Spanish banks had higher profitability than then their EU peers from 2003-07 as the chart shows below. The profits were higher despite having lower leverage ratios than other EU banks.
However in recent months, credit growth has come to a halt and is falling non-performing assets are rising. As a result banks in Spain have been writing off many bad assets.
The boom in Spanish housing market and the subsequent collapse has hurt banks very badly. As we can see from the following chart, the largest loans made by banks was to the home mortgage market at over 30%.When construction loans are added, this exceeds over 50% of all loans. Clearly this will have further negative implications for bank earnings are mortgage defaults sour due to the rising unemployment rate and lower wages.
Source: Selected Issues, IMF, April 2009
This week BBVA offered its employees five year leave with 1/3rd of pay to as part of cost-cutting measures.
Banco Bilbao Vizcaya Argentaria S.A. (BBV) currently pays a 7.08% dividend yield and Banco Santander SA (STD) pays 12.71%. Despite these high yields it may be a good idea to wait for the Spanish housing market to stabilize and the overall economy to improve before investing in these two bank ADRs.
The S&P; Europe 350 Dividend Aristocrats Index (in Euros) is up 17.88% so far this year. Compared to this, the US S&P; 500 Dividend Aristocrats is up just 4.19%. The S&P; High Yield Dividend Aristocrats is actually down 1.27%.
European dividend stocks usually have higher yields than US. In Europe, most companies prefer to payout their earnings than to plough it back into the company coffers for growth. In addition, most of these companies are conservatively run and have huge investor base who depend on dividends for their additional income. Smart US investors have traditionally invested in stocks on the other side of the pond for better dividends.
As the above update on the S&P; Europe 350 Dividend Aristocrats Index shows, when markets stabilize dividend stocks rise nicely when compared to non-dividend paying stocks. In this case, the index has 40 components including world-class companies like Nestle, Barclays, Novo Nordisk etc. These companies pay consistent, high dividends – maybe not the financials. The S&P; 500 Dividend Aristocrats has performed worse than the European peer index with a growth of less than 5%. This is because despite being the US Dividend Aristocrats, most US companies have a lower dividend yield.
The following are the 40 components of the the S&P; Europe 350 Dividend Aristocrats Index:
Abertis Infraestructuras, S.A.
Atlas Copco AB – A Shares
Barclays
British American Tobacco
British Land Company plc
Capita Group
Centrica
Cobham
CRH PLC
Daily Mail & General Trust ‘A’
Enterprise Inns PLC
Essilor International SA
FirstGroup
Gas Natural SDG, S.A.
Hammerson
Hermes International
Iberdrola S.A.
KBC Group NV
Legal & General Group
Man Group PLC
Misys
National Grid PLC
Nestle SA
Next plc
Novartis AG
Novo Nordisk A/S – B Shares
Orkla ASA
Pearson
Publicis Groupe
Rexam PLC
Roche Holding AG
Royal Dutch Shell – B shares
Sanofi–Aventis
Scottish & Southern Energy
Svenska Handelsbanken AB – A Shares
Tesco
UCB SA
Union Fenosa, S.A.
Vodafone Group PLC
WPP Plc
For US investors, only a few of the above stocks are available as ADRs. And some of them trade on the thinly traded OTC markets. Some of the above stocks that are avaialble in the US are listed below together with their ticker and current yield:
Nestle SA Spons Reg (NSRGY)
Current Yield: 3.28%
British Land Company plc(BTCLY)
Current Yield: 9.10%
Iberdrola S.A. (IBDRY)
Current Yield: 5.46%
National Grid PLC(NGG)
Current Yield: 7.17%
Novartis AG(NVS)
Current Yield: 4.28%
Barclays has suspended dividend payments since it received heavy infusions from the British government last year. Also today there is news that a large Gulf investor plans to offload shares in Barclays. Other great companies in the list are Sanofi–Aventis, Tesco(TSCDY) – the top British supermaket chain, Vodafon, etc. While the European dividend players offer high yields, it is important to select high quality companies as recently som banks have disapeared altogether or slashed dividends drastically.
The following is a list of the top 10 best year-to-date (YTD) performing European ADRs listed in the organized exchanges:
Mechel Steel MTL – 175.25%
Wimm-Bill-Dann Foods WBD – 104%
Vimpel Communications VIP – 82%
Acergy ACGY – 79%
Aixtron AIXG – 74%
ASM International – New York Shares ASMI – 62%
Flamel Technologies FLML – 61%
Credit Suisse CS – 59%
Randgold Resources GOLD – 59%
Oce OCENY – 56%
The % denoted is the growth so far this year.Vimpel is a fast growing mobile and telecom service provider in Russia. After falling heavily the stock has rebounded nicely. Due to the rebound in commodity prices, stocks such as GOLD and MTL have had a great run from their March lows. It is interesting to note that only only stock in the financial sector (CS) is in the list. However National Bank of Greece has grown about 50% YTD. Overall it is a mixed bag with many large cap banks like Barclays, Deutsche Bank still underperferming other ADRs.
