Four Frontier Market Stocks

Posted by on

Frontier markets are the so-called next emerging markets. While investing in emerging market economies like Brazil, Russia, China, India takes a strong stomach, investing in frontier markets require nerves of steel. Frontier markets are those lie outside of the realm of emerging market investors and they can be considered the “Wild West” of the investment world.

Some of the frontier markets include the middle eastern countries such as Dubai, Saudi Arabia, the countries of Sub-Saharan Africa such as Nigeria, Burundi, etc., Asian countries such as Philippines, Indonesia, etc. and Latin American nations of Colombia, Costa Rica, etc. These markets started to appear in investing universe in 2007,2008 when some global investors looked for much higher returns.

In this post lets review four stocks from such markets.

1.Banco Latinoamericano de Exportactns SA (BLX) is “a supranational bank originally established by the central banks of Latin American and Caribbean countries to promote trade finance in Central and South America and the Caribbean (the Region). The Bank operates under the commercial name of Bladex” based in Panama City, Panama. The current yield is 8.85% and the bank has a market cap. of about $301 M. BLX has performed relatively well in the last 52 weeks since it is down only 36%. Out of the30.6 M shares outstanding 57% is held by institutions.

2. Philippine Long Distance Telephone Co (PHI) is a telecom provider in Philippines with about 32 million subscribers. Last year the company had a total revenue of $1.4B and revenue has grown at a rate of 17% annually. PHI pays a dividend of 6.65%.

3. Colombia-based petroleum company EcoPetrol SA (EC) was listed in the New York Stock Exchange last September. EC has a dividend yield of 5.91%. EcoPetrol “is among the top 40 oil companies in the world and the four chief oil companies in Latin America. Besides Colombia, where over 60% of domestic production is concentrated, the Company is involved in exploration and production activities in Brazil, Peru and the United States (Gulf of Mexico).”

4. The financial services holding company Creditcorp Ltd (BAP) operates in Peru. BAP provides commercial banking, investment banking, insurance and retail banking. The current yield is 3.50%. Annual revenue growth in the last 5 years is 20.5% and the dividend growth is 45%.

For a few frontier market closed-end funds and ETFs checkout my earlier article A Few Frontier Market Investment Ideas

IMF: World Economic Outlook 2009

Posted by on

Today the IMF released its “World Economic Outlook Update – Global Economic Slump Challenges Policies” report.

The following are some of the main points noted in this report:

1. The United Kingdom is going to have the worst economic downturn this year with a projected figure of -2.80%. The British economy will fare the worst among the advanced economies.

2. The emerging market economies of China and India will have the best growth at 6.7% and 5.1% respectively.

3.US economy will contract by 1.6% which is much better the UK economy.

4. Europe’s largest economy Germany will shrink by 2.5%.

5. The Canadian economy will fare better with a contraction of 1.2% – much lower than UK and the USA.

6. Overall the advanced economies are projected to contract by 2% while the emerging market economies are projected to grow by 3.3%. Like in the past few years this implies that the emerging markets are going to drive global growth in 2009.

7. Brazil may grow by 1.8% and the South East Asian economies of Singapore, Malaysia, Thailand, etc. will grow by 2.7%.

Other key bullet points from this report are:”

  • The world economy is facing a deep downturn.
  • Financial markets remain under stress.
  • A pernicious feedback loop between the real and financial sectors is taking its toll.
  • Advanced economies are suffering their deepest recession since World War II.
  • Emerging and developing economies are experiencing a serious slowdown.
  • Anemic global growth has reversed the commodity price boom.
  • Inflation pressures are subsiding.
  • Global monetary and fiscal policies are providing substantial support.
  • The uncertainty surrounding the outlook is unusually large.
  • Strong and complementary policy efforts are needed to rekindle activity.”

You can read the full report by clicking here: IMF 2009 World Economic report.

Will Mining Stocks Shine Next Decade?

Posted by on

Mining stocks are not for the fainted hearted. As we have seen in the past few months as the demand for commodities fell, mining stocks were pulled down much more than the overall market indices. However when commodities were hot, mining stocks had an incredible run.

In a recent article titled “After the bubble burst: Where next for mining?” at Trustnet, a unit trust (mutual fund) research site in UK, the author gives some very fascinating stats. The article says that the boom period that lasted “most of the past decade the FTSE Mining Index returned a massive 1,623.22 per cent“.(emphasis added). Mining stocks constitute one of the major sectors of the FTSE Index – the main stock market index of UK. This is type of great returns was possible only because of the demand of commodities worldwide especially the demand from the fast growing economies of China, India and other emerging markets.

FTSE Mining Index Multi-Year Performance Chart:

The chart shows that the mining stocks started climbing around 1999 and that run lasted until the credit-crunch hit the world markets. From the chart we can also observe that the Total Return(TR) since 1986 was 2246.51%.

So what does the future hold for mining stocks?

Mining companies are dependent on the economic growth of countries especially fast-growing countries such as China, India. The government of China and India have promised heavy spending on infrastructure projects such roads,bridges, railroads, airports, etc. as part of their stimulus plans. Here in the US, the Obama administration has promised to invest heavily in upgrading the infrastructure as well. So in a way the demand for commodities might increase as these projects are implemented.However all these government initiated efforts will not start immediately. Hence these stocks will continue to be extremely volatile. Gold will continue to be a favorite for investors in these tough times. But the demand for commodities like coal, silver, iron, copper, tin, etc. are all difficult to predict at this time with any accuracy – other than the infrastructure investment mentioned earlier.

Some of the large foreign mining companies listed in the New York Stock Exchange are:

Companhia Vale do Rio Doce (RIO) – Brazil

BHP Billiton Ltd. (BHP) – Australia

Rio Tinto plc (RTP) – UK

AngloGold Ashanti (AU) – South Africa

Compania de Minas Buenaventura (BVN) – Peru

What Recession? This Company is Growing !

Posted by on

Most companies based in the USA are in contraction mode laying off people, cutting expenses, postponing projects, etc. to survive this downturn.

On Jan 23, 2009 the Financial Times reported:

“McDonald’s is planning to this year create 12,000 jobs and open 240 new restaurants across Europe, it emerged on Friday, as the fast-food chain shows signs of being one of the few global companies to benefit from the financial crisis.

In stark contrast to the multinational groups announcing record job cuts and losses, McDonald’s plans for expansion in Europe are its biggest in five years.

“We’re certainly not slowing down,” said Denis Hennequin, president of McDonald’s Europe as he outlined to the Financial Times his plans to hire 50 people at each of the 240 new restaurants, mostly in Spain, France, Italy, Russia, and Poland”

The company says the reasons the expansion in Europe the low-priced menus ,improved store designs, new menu choices and food price inflation. While the first three points are understandable the last one is open to argument.

McDonald’s also said that it plans “to add about 400 new McCafes to the 800 it already has in Europe this year.”

Some of the reasons that MCD is flourishing in a downturn economy worldwide are:

1. In many countries McDonald’s is a novelty and consumers want to give it a try.

This is true in emerging market countries and also in some Europe countries.

2. As mentioned by the company, consumers prefer to eat something that is cheap. This is true in Europe as well where local food prices could be high in traditional eating places. Though their food may not be of as good quality as other fast food restaurants they food is comparably cheaper. This is a huge draw among cash-strapped consumers.

3.McDonald’s brand is very popular all over the world and it continues to take advantage of that with effective marketing.

4. The company positions its stores in some of the strategic places around tourist locations, busy thoroughfares, near malls, etc. In countries such as Canada they can be found inside a huge mall right next to high-end fashion or jewelery stores.

McDonald’s (MCD) is a Dow component and is a core holding in many mutual funds. The stock pays a dividend of 3.45% and the market cap is about $65 B. Since going public, the stock has split 9 times.

Are Indian Banks Better than Western Banks?

Posted by on

Banks in India seem to be faring much the banks in the Western world. In a recent article, The Banker magazine says that though India has been affected by the global downturn its banking system has survived due to the bold actions taken by the Duvvuri Subbarao, the Governor of the Reserve Bank of India.The article says that some of the reasons for the surprising strength of the banks are not having direct exposure to subprime mess, limited derivative exposure and low off-balance sheet activities. These three are the biggest causes of meltdown in many of the large financial institutions in Europe and North America. Another factor that must reviewed when evaluating banks is the “Capital-To-Risk weighted Ratio”. The piece says “The capital-to-risk weighted assets ratio of Indian banks, at 12.6%, is above the regulatory norm of 9% and well above the Basel Accord norm of 8%.” [emphasis added]

ICICI Bank (IBN) and HDFC Bank (HDB) are the two banks that trade in the US. The largest bank in India is the state owned, State Bank of India. However it is not listed as ADR here. ICICI is India’s largest private sector bank.

1. ICICI Bank (IBN)
Current Yield: 3.48%

Today ICICI reported earnings for the last quarter of 2008. Profits after tax went up 25% over 3Q, 2008 at $261 M. NPA stood at 1.95% which is much less than many large global banks.

As of December 31, 2008 ICICI’s total capital adequacy was 15.6% and Tier-1 capital adequacy was 12.1%.

ICICI is gaining more customers and increasing its deposit base in UK and Canada. The main reason for the growth in these two countries is higher interest rate offered by the bank in comparison to many domestic banks.

ICICI has a rating of BBB-, which is just above junk status, given by Fitch back in November last year. Last year there was a run on some of its branches as rumors spread that the bank was about to collapse. However that rumor turned out to be false. S&P; seems to think that the bank would survive any eventuality. It said in October last year ” the bank had a strong credit profile, but a relatively low credit rating as it is rated on a stand-alone basis. But given its importance to the Indian economy, the agency believes it would ‘receive extraordinary systemic support in the event of any financial distress’, and is therefore unlikely to fail.”

2.HDFC Bank Ltd (HDB)
Current Yield: 1.05%

HDFC has been affected by the economic downturn in India. Asset growth has slowed.In order to increase loan sales the bank has started to cut interest rates especially on mortgage loans. However customer default is a concern due to many job losses and complete freeze in the real estate market. HDB’s current capital adequacy ratio is 13.7%. Unlike ICICI, HDFC does not operate retail outlets in UK and Canada.

It remains to be seen whether the policy changes put in by the central bank will prevent further downturn in the Indian economy.

Update:
Bloomberg: State Bank of India, ICICI Profits Advance on Bond Investments