Archive for 2009
Expect Better Brazilian Dividends In 2010
With a booming economy, stabilizing currency, falling interest rates and vast oil reserves off its coast, Brazil continues to be one of the hottest emerging markets to watch heading into the new year and there’s good news for dividend seekers. A recent report by research firm Markit expects Brazilian firms to raised dividends in 2010 and 2011 as profit growth surges.
More than half of 52 Brazilian companies tracked by Markit raised their dividends this year, but that number could jump to 33 out of 56 companies next year and 48 out of 58 firms in 2011. Dividend cuts were spotted at 24 Brazilian companies this year due to the decline in global equity markets suffered at the beginning of the year. The start of 2009 is now a distant memory as Brazil’s Bovespa, the country’s benchmark equity index, has been one of the world’s top performers in 2009.
The Markit report said Brazilian telecoms were most conservative with their payouts in 2009 followed by commodities names, banks and food companies. In 2010, seven commodities firms in Brazil could boost their payouts as China continues its voracious demand for commodities and as Brazil prepares for the 2014 World Cup and 2016 Summer Olympics.
Consumer discretionary names, utilities and financial services are other sectors in Brazil that could see increased payouts in 2010, according to the report.
China’s Post-Christmas Treat
Once again China has delivered the kind of surprise that U.S. politicians and economists could only dream of – a major jump in GDP statistics. While most of us were digesting Christmas dinner China revised its growth rate for 2008 upwards from 9 percent to 9.6 percent.
Not impressed? Keep in mind that this growth spurt came at a time when the global financial system was in crisis and in danger of collapse. While the world swooned China was just shy of double-digit expansion.
At the time China’s export sector was being hammered due to a severe demand pullback by shell-shocked western consumers. But China found new growth internally as it conducted a periodic economic census…a review of economic performance. The census found unexpected growth and productivity in the country’s service sector. Gross domestic product figures for 2005, 2006 and 2007 will also be revised as a result of the latest census.
Look out Japan! The new figures put China within sprinting distance of overtaking Japan as the world’s second largest economy. Gross domestic product was $4.6 trillion last year. That compares with the World Bank’s estimate of $4.9 trillion GDP for Japan. The gap is just $300 billion, almost a rounding error in China’s expanding economy.
Back in 2006, we at the China Stock Digest reported on a similar GDP surprise from China. Then the Chinese government revised its economic estimates after another economic census discovered $280 billion in hidden economic output. To put it in perspective, the census result meant that China has discovered a new internal economy equal in size to the economy of Indonesia. This newfound productivity boosted China’s gross domestic product for 2004 to almost $2 trillion.
Just $2 trillion in GDP in five years ago. Now $4.6 trillion and climbing, during a global panic.
As we say to cynics who scorn Chinese statistics, you’re right. China does often get the numbers wrong but not the way that critics charge. Beijing doesn’t habitually exaggerate its numbers. China’s mandarins are politically savvy enough to lowball their estimates to avoid the embarrassment of disappointment and enjoy the fruits of a positive surprise.
The latest surprise is good to the tune of $205 billion. That’s equal to the entire economic output of Malaysia.
The new money gives us a clue as to where investors will find their next earnings surprises. The previously undiscovered productivity is in the service sector, not state owned enterprises. That’s good news for China and for the world.
For China, it means less reliance on foreign exports as the nation’s internal economy expands dynamically (just as we first noted back in 2006). For the global economy there’s hope that China’s trade surplus will begin to approach something like a balance between exports and imports as the internal economy grows. In fact that’s already happening as China’s imports increase, while exports remain weak.
China will beat Japan once and for all in 2010. For the record, we believe this event happened years ago, not in hard currency terms, but in terms of purchasing power parity, a more realistic measure preferred by the CIA.
Decoding the Mystery of China’s Exploding Retail Sales
First the good news. The total volume of retail sales in China will likely grow by 16 percent next year, that according to Chen Deming, China’s Minister of Commerce. If such a prediction were made about U.S. retail sales, champagne corks would be flying in every mall and big box store nationwide. But, when considering China, as always, it’s complicated.
That brings us to the less good news. China’s retail sales figure is based partly on government spending as it directly affects the retail economy. The ratio of government to true consumer spending has never been clear, but with Beijing’s stimulus money still being distributed, it has to be a substantial portion.
Here’s the last part of the downside. This year’s retail numbers, which have been running at a year-over-year average rate of about 15 percent improvement in retail sales are somewhat misleading because some monthly figures stand in comparison to the sharp drop in sales caused worldwide by the global financial crisis.
Back to the good news. A 16 percent increase for the whole of next year is still a very impressive number.
The prediction for 2010 stands in comparison to this year when widespread government rebate and incentive programs have improved appliance sales and driven automobile sales into the stratosphere. Improving on a stimulus boosted economy is an enviable prospect indeed.
No one should be shocked by now to learn that China became the world’s number one vehicle market in 2009 with sales in excess of 1.2 million units.
By the end of October, the “home appliances to the countryside” stimulus program yielded $17.58 billion in retail sales for appliance makers, not bad considering the ‘countryside’ is code for ‘poor’ districts in China. Another stimulus called the “trade-in program” of rebates created another $1.46 billion in sales of new cars and home appliances by November 24th.
With exports still down China is hitting the gas to boost domestic consumption, hoping China’s consumers will pick up the slack. Stimulus funds are being distributed according to Beijing’s guidelines but not all of the money is coming from Beijing. Under the guidelines, 32 cities and regions have allocated funds worth $366 million to expand sales networks in rural areas, to rebate programs for household appliances and automobiles, and to launch credit subsidy policies for small and medium-sized enterprises.
Chang Xiaocun, director general of the Department of Market System Development told China Daily, “Ballooning consumption of household appliances, auto, property and agricultural goods is the major driving force behind the rising retail sales.”
Chinese mandarins have given every indication that they want the retail boom to continue. China’s consumers spend a far smaller percentage of GDP than Americans so there’s plenty of room for growth. All of the signals we are getting indicate that consumer stimulus programs will continue through 2010.
Money Moves East to the World’s New Capital of Capitalism
About: (Shanghai Stock Exchange, Shanghai Daily, China Economy, Chinese Economy, China Stock Digest, GDP growth, Agricultural Bank of China, Las Vegas Sands and Wynn Resort)
Mainstream media haven’t noticed it yet but the world’s financial center of gravity is slipping away from New York and London. In terms of raising capital, the west has already lost the battle for supremacy.
During 2009 China outstripped the United States in terms of the amount of money raised from new stock listings. It’s a powerful signal of a resurgence in Chinese investment while U.S. lending and spending languish.
Newly listed companies have raised more than $50 billion from initial public offerings on exchanges on the Chinese mainland (Shenzhen and Shanghai) as well as in Hong Kong so far this year. That’s about twice as much as the $26.5 billion raised from American IPOs.
Wall Street has led in IPOs every year since 2000 (except for 2006, when London was the destination of choice). But no more. And the trend doesn’t stop here.
Now U.S. firms are cashing in on Oriental liquidity. Casino companies Las Vegas Sands and Wynn Resort both floated shares of their Macau operations in Hong Kong recently, although the Las Vegas Sands listing didn’t impress Hong Kong’s jaded investors.
Next year the money momentum will increase. The Shanghai Stock Exchange is likely to emerge as the world’s biggest market for initial public offerings in 2010 according to globally respected auditor Ernst and Young.
The Shanghai exchange is now No. 3 globally in total funds raised for IPOs in the first 11 months of this year, following Hong Kong and the New York Stock Exchange.
Ernst & Young told the Shanghai Daily, “It is very reasonable to forecast that the Shanghai bourse may rise as the world’s biggest exchange for IPO activities in 2010, due to the rising significance of Chinese companies in the global IPO market.” Funds raised through IPOs are expected to more than double to $55.6 billion in Shanghai next year as the Chinese economy and the capital markets become more stable.
As Shanghai becomes the world capital of capitalism, new money raised in Hong Kong and Shenzhen will further tighten China’s claim to be the world’s epicenter for IPOs.
One of the Big IPO’s we’ll be watching for at the China Stock Digest is the listing of The Agricultural Bank of China, the sole state-owned bank yet to be publicly traded due to a backlog of government mandated non-performing loans which are now being cleared from the books.
The Agricultural Bank listing will be a major multi-billion dollar event on the world financial stage.
China Will Overshoot its Growth Targets for 2010
About: (China Economy, Chinese Economy, China Stock Digest, GDP growth)
China has just come out with its 2010 economic growth predictions. As expected, they are once again world-beating.
But are they correct?
China Stock Digest subscribers know that we have taken a unique position when it comes to Beijing’s economic predictions. While China critics habitually accuse Beijing of exaggerating its numbers, we say the opposite.
China almost always low balls its numbers. Why? Beijing wisely understands that failing to meet economic projections can be politically risky. So predicting results below real expectations prevents disappointment and usually creates positive surprises. The worst that can happen with a lowball projection is that Beijing hits its public target.
That’s what’s happening this week as the Chinese publish their growth predictions for 2010.
China is targeting 8 percent growth in 2010 partly because of a “fragile” global recovery, industry minister Li Yizhong announced a short time ago in an official webcast. China’s industrial output is expected to post an impressive 11 percent rise from a year earlier this year, buoyed by the government’s stimulus packages, Li added.
We’re calling this another ‘under promise/over deliver’ moment from Beijing. In fact we already expect double digit GDP growth for the fourth quarter of this year. So, 2010 is unlikely to be a lot worse unless unforeseen factors intervene.
Momentum and Asian expansion is on China’s side.
As you can see from this IMF projection, China is expected to beat the world’s leading economies with more than 8% expansion:
- China 9%
- India 6.4%
- Canada 2.1%
- Japan 1.7%
- US 1.5%
- UK 0.9%
- France 0.9%
- Germany 0.3%
In fact, China has officially targeted 8 percent growth every year since 2005 and has yet to come up short. As we said, under-promise and over-deliver!
Three Months Later, AT&T Answers Verizon’s Dividend Hike
When Verizon (NYSE: VZ) boosted its dividend in early September, we speculated that rival AT&T (NYSE: T) would probably follow suit at some point this year. After all, the Dow components have illustrious dividend histories and are about as far from growth stocks as one can get, so dividends are big part of the allure of owning these names. It took three months, but AT&T did announce on Friday that it is increasing its quarterly dividend by a penny share to 42 cents.
A penny is better than nothing and it is worth noting that this is the 26th consecutive year that AT&T, the largest U.S. telecom by market value, has raised its payout. That said, this increase of 2.4% is paltry compared to the almost 13% hike AT&T rewarded shareholders with in 2008 and it represents the smallest dividend stocks increase AT&T has offered since 2001. The new dividend is payable on February 1 to shareholders of record on January 11.
AT&T and Verizon are like some of the electric utilities we’ve blogged about recently in that both offer robust yields. AT&T currently yields 6%, not factoring in the new dividend stocks, and Verizon yields 5.8%, though both lag one of our Dividend Genius holdings, Centurytel (NYSE: CTL), which yields 8%. Both have fairly predictable revenue and profit streams and represent low-risk investments. In addition, like utilities, should AT&T or Verizon opt to tap the credit markets to bolster their networks, the current interest rate is favorable for them.
And like utilities, these telecoms represent are superior alternatives to cash investments in the current interest rate environment.
Christmas Cheer Comes Early for China
About: (China Economy, Chinese Economy, China Stock Digest)
No economic indicator is watched more closely than retail sales figures in the United States as the Christmas season approaches. So far the mood in this country is nervous.
China is also keeping a close eye on retail sales as a key economic measure, even though only a small minority of the country’s 1.3 billion people celebrate Christmas. Nevertheless, the retail picture there is exceptionally encouraging.
Large retailers in China say they enjoyed a major surge in sales last month, thanks in part to continuing high demand for new cars and trucks. The Ministry of Industry and Information Technology tracked the performance of 50 big retailers and found their sales jumped 28.4 percent from a year earlier to $2.54 billion in November.
Accelerating retail sales are especially important to the Chinese economy. With exports to western nations still in decline due to the global financial crisis, China is relying increasingly in internal consumption to sustain demand for its products.
China’s major holiday season, the National Day holiday, has already passed. Families celebrated throughout the country in October, and during that festive season, retail sales expanded even more quickly than they did last month, jumping by a record-breaking 35.71 percent. Some of the credit for that sales boom has been attributed to holiday discounting.
The Chinese government reports that sales of automobiles soared 97.3 percent in November while food sales increased 36.3 percent. China’s total retail sales in November grew by 15 percent from a year earlier to $165 billion. That’s off about one percentage point from the month before, due to October’s National Day spending spree.
Increased consumption in China is also good news for the U.S. as it tries to level out its balance of payments deficits.
In order to boost domestic consumption China has extended its stimulus package through tax cuts and rebates. Indications from Beijing suggest that the country will continue to offer subsidies to buyers of efficient cars, and to encourage consumers to trade in their home appliances.
By all appearances, China is succeeding in its drive to wean itself from heavy dependence on U.S. consumers, by boosting the spending of its own population.
Waste Management: Nothing Trashy About This Dividend Stock
We often say that the most boring sectors are the most exciting when it comes to finding juicy dividends and if you’re in the mood for boring, look no further than the trash-hauling business. No body likes to take the trash out and we rarely think about the profit potential for the companies that come to pick our trash up, but there is a pretty compelling investment thesis behind companies like Waste Management (NYSE:WMI).
In a market environment that is all but begging for investors to play a little defense with quality, high-yiedling names, Waste Management, the largest U.S. trash hauler, is worth a look. Oh yeah, the company just announced it boosted its quarterly dividend 8.6% to 31.5 cents a share from 29 cents. Based on Thursday’s closing price, Waste Management currently yields 3.5%, pretty good, but that yield is going to get a bump with the new dividend. The new dividend will be declared in February and paid in March.
This is the sixth consecutive year Waste Management has increased its dividend. The shares are up 8% in the past three months, double the return for the S&P 500 over the same time.
BCE Dialing Up Dividend Increases
BCE Inc. (NYSE: BCE), Canada’s largest telecom firm, has really been kind to shareholders since scuttling plans to become a private company in 2008. With Thursday’s news of a 7% dividend hike that will take the annual dividend to $1.74 a share in 2010, the company has boosted its payout three times since the privatization plans were scrapped. BCE is a lot like its American peers AT&T (NYSE: T) and Verizon (NYSE: VZ) in that it yields over 6% (6.2% to be exact). That’s as of Thursday’s close and does not factor in the new dividend. The annual dividend for 2009 will be $1.54 a share.
BCE also announced it buyback $500 million of its own stock, it’s second buyback plan since the company decided to remain public. The company completed a $1 billion buyback program in May. Noteworthy is the fact that BCE’s dividend has increased 19% since the fourth quarter of 2008. Many companies don’t have a five-year dividend growth rate that robust.
The company also announced it will make a special contribution of $500 million to its pension plan that will reduce pension funding requirements and expenses by $75 million and $45 million respectively in 2010, enabling the company to bolster per share earnings and free cash flow. As a result, BCE now expects 2009 earnings to come in at the high end of the $2.40-$2.50 a share guidance issued earlier this year and free cash flow is expected to be $1.25 billion to $1.4 billion.
Needless to say, this an impressive collection of good news from BCE and it only serves to strengthen our feeling that companies with rising dividends and strong yields are a far better alternative than cash alternatives, especially for U.S. investors looking for conservative ways to combat historically low interest rates. Telecom stocks vs. Treasuries or money markets? The answer is clear!
Fat Cats Take Their Money to China
Just after President Obama gave a tongue-lashing to America’s bankers for failing to invest in the U.S., Beijing let it be known where the world is investing. Chinese authorities announced that for the fourth straight month foreign direct investment in China continues to rise.
Foreign direct investment (FDI) was down sharply during the worst of the global recession. Now that trend has clearly been broken.
The latest jump in FDI is an eye-popping 32 percent increase over last year.
Investment in China rose to $7.02 billion in November according to the Ministry of Commerce. The 32 percent jump in foreign investment last month compares with a mere 5.7 percent increase in October.
Who’s pouring all of this new money into China? The foreign inflow is no longer dominated solely by the U.S. and Europe. In fact American and European investment in China continues to be down for the year.
The hotspot is Asia. Inflows are coming from Japan, Singapore and the countries in the Association of Southeast Asian Nations (ASEAN), according to Beijing. The growth centers in China for foreign investment are the thriving coastal provinces of Jiangsu, Guangdong, and Liaoning as well as the booming inland province of Chongqing.
Investment from the United States and the European Union both dropped 38 percent in November from a year earlier. But inflows from Association of Southeast Nations surged almost 60 percent year-over-year.
China’s relentless growth is clearly helping to drive a regional recovery. In turn, Asian economic expansion is fueling a return of investment to China.
We are expecting China to bounce back to double-digit growth when GDP expansion numbers are announced for the fourth quarter.
Foreign direct investment shows that the world agrees. The place to invest in today’s economic climate is China.
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