With Low Debt, Latin America Should Do Better This Year

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One of the factor that influences the performance of an economy is the external debt owed – which is the amount owed by locals to non-residents (or foreigners). According to  Finance & Development of IMF’s Statistics Department, in Latin America external debt as a percentage of GDP has fallen significantly over the past five years. During the same time external debt has increased in Europe.

Latin America’s debt  has decreased from 59% of GDP in 2003 to 32% in 2008.Brazil, for example, reduced its debt from $43B to $16B in the same time period. Just like for individuals, having a low debt helps a country by reducing interest expenses and other related costs.

Another factor to note about the debt in Latin America is that most of the debt is owed by  private nonbank and public sectors. Debts owed by banks is just 16%  of the GDP.But in Europe, in 2008 banks owed 54% and 45% of foreign borrowing in Europe and Asia respectively. With many banks in trouble around the world, having less bank debt is better forcountries.

Chart -  Latin America Debt CompositionLatin America Debt

Chart – Europe, Asia and Latin America Debt Composition

Latin-Asia

Source: Finance & Development – March 2009, IMF

Some investors believe that  countries with low debt or a surplus are better for invstments than those with excessive debt. Based on this logic, some of the economies listed above are good investment destinations. Mexico, Chile and Brazil are three picks. An easy way for investors to get exposure to these eocnomies is via an ETF. The ETFs for these countries are listed below:

1.Brazil – iShares MSCI Brazil Index (EWZ)

2.Chile – iShares MSCI Chile Index (ECH)

3.Mexico – iShares MSCI Mexico Index (EWW)

Knowledge is Power: Extended Downturn Edition

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1.April 8 (Bloomberg) — Since the Jwaneng diamond mine in Botswana closed in February, Emmanuel Garetshele has done little except cash his mine-operator paycheck and watch his country go from being the success story of Africa to an economic laggard. Botswana Diamond Mines Sit Idle as Africa’s Star Economy Loses Its Luster

2.SUFFOCATED BY DEBT -Greece is on the brink of bankruptcy despite the fact that the global recession has yet to hit the country with full force. Strikes are paralyzing the country and the EU is putting on the pressure. But the government is still trying to put a positive spin on things. Greece Teeters on the Verge of Bankruptcy

3. IMF responds to foreign depositors in Icelandic banks

4. Germany Faces Extended Downturn Despite Stimulus
IMF Survey Magazine article

5.Schroders’ Maisonneuve sees a great big W and explains how to play financials in this mad, mad, mad, mad world. Separating ‘utility’ banks from financial growth stocks

6.US President did offer a ray of light towards March-end, despite some disturbing estimates from the IATA. Do you want the good news or the bad news?

7. The media loves to harp on Japan’s “lost decade” and use the world’s second-largest economy as a negative example. Yet while corporations in other countries are still gaming the government for handouts and freebees, corporate Japan has learned that government actions tend to merely delay the inevitable. This time Japan Inc. is restructuring for real and a leaner, meaner Japan is poised to rise back to the top.-Why I’m Bullish on Japan

Update: The Ten Most Traded ADRs

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The ten most traded foreign ADR stocks by daily volume are:

Companhia Vale do Rio Doce-CVRD – RIO
Taiwan Semiconductor Manufacturing – TSM
Nokia – NOK
Petroleo Brasileiro – PBR
Itau Unibanco – ITU
Banco Bradesco – BBD
Alcatel-Lucent – ALU
Siliconware Precision Industries – SPIL
BP – BP
America Movil – AMX

Four of the above ten stocks are from Brazil.America Movil is from Mexico.

Six Stocks With Attractive Yields

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Many stocks in the oil&gas and utility sectors have attractive dividend yields at current prices. Six of them are listed below with their current yields. Though they may fall further due to volatile market conditions, they are definitely worth looking into for potential long-term investment opportunities.

1.Company:ENI SPA (E)
Country: Italy
Dividend Yield: Oil & Gas – Integrated
Sector: 8.43%

2.Company:National Grid PLC (NGG)
Country: UK
Dividend Yield: Electric Utilities
Sector: 4.86%

3.Company:TransCanada Corp (TRP)
Country: Canada
Dividend Yield: Natural Gas Utilities
Sector: 5.02%

4.Company:PetroChina Company Ltd (PTR)
Country: China
Dividend Yield: Oil & Gas – Integrated
Sector: 4.05%

5.Company:Petrobras Energia Participaciones SA (PZE)
Country: Argentina
Dividend Yield: Oil & Gas – Integrated
Sector: 6.15%

6.Company:Statoilhydro ASA (STO)
Country: Norway
Dividend Yield: Oil & Gas – Integrated
Sector: 4.37%

S&P 500 Index Returns by Year

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The S&P 500 is down 7.50% as of market close today (April 6,2009). The worst performing sectors is the financials at 24.7% and the best performing sector is IT with a return of 9.98%. Traditional defensive sectors such as utilities and consumer staples are down 11.11% and 8.25% respectively year-to-date.

The current bear market is the worst market since the great depression. Since the start of the credit crunch in October,2007 the S&P fell to a low of 56.8%. This is worse than the dot com bubble crash when the index was down 49.1% only.However during the great depression, the Dow index was off a horrendous 89.2%.The current crash is also worst than the 1973 oil crisis crash when the S&P was down 48.2%. From a trough of being down around 57%, the S&P has rallied some basis points in the past four weeks (Data Source: dshort.com)

The following chart was developed by Yale University’s Value Square Asset Management.  It shows the % change in S&P each year. It is not clear how data for 1800s were found and used (click to enlarge)

Sp Index returns by year