Markets surged higher today in spite of disappointing unemployment data and sub-par earnings from some multinational corporations like ExxonMobil (XOM, quote) and VALE (quote). As well, South Korea’s economy reported growth in the previous quarter and Joseph Stiglitz weighs in on the Euro crisis.
Brazilian miner Vale saw its profits halved this quarter as the result of weakening Chinese demand depressing global iron ore prices. The company also cited higher than expected seasonal rainfall in Brazil as partially responsible for the decline in profits. While discouraging year-over-year, the results were largely in-line with expectations. As well, this could prove to be a buying opportunity in this beaten-down stock as tighter global supplies and an increase in iron ore demand in March could be bullish for VALE going forward. Trading at a paltry 6.7 times forward earnings, VALE could be good value at these levels.
South Korea’s economy (EWY, quote) grew at the quickest rate in more than a year during the first quarter. The economy grew at 0.9% compared to a rate of 0.3% for the three months prior. The central bank blamed weakness in the previous quarter on uncertainty stemming from the European debt crisis. That waned as the winter went on and semiconductor and electronic companies like Samsung drove the economy higher. While markets applauded the growth with the Kospi and the Korean Won both higher in Thursday trading, investors should be wary that the most recent flare-up in Europe could affect growth adversely going forward.
In an interview in Vienna, renowned Columbia economics professor and Nobel laureate Joseph Stiglitz emphasized the need for European countries to focus on growth, claiming that if European leaders continue to concentrate solely on austerity that they are ‘headed to a suicide.’ He adds that if austerity were confined to just a small country like Greece than it may be feasible, but with the addition of nations like the U.K., France, and Spain, such a plan is simply untenable. Evidently, it will be difficult for an austerity-only plan to succeed; a combination of fiscal rectitude and growth is imperative if Europe is to maneuver out of its current crisis.
In the wake of Ivanhoe Mines’ (IVN, quote) decision to sell a 57.6% stake in its SouthGobi Resources operation to Chinese state-owned firm Aluminum Corporation of China (ACH, quote), also referred to as Chalco, the Mongolian government has revoked SouthGobi’s mining licenses and is trying to pass laws that restrict foreign ownership of resources that the country deems ‘strategically important.’ While it remains to be seen if the government will actually nationalize these concessions — it’s an election year and pandering to a population that’s not too keen on the Chinese makes for good politics — it’s best to avoid these stocks for the time being.
Rapoza marvels at the incredibly low unemployment rate in Brazil (EWZ, quote); stripping out seasonal factors, the unemployment rate is at a paltry 5.8%, just whiskers away from the all-tme low at 5.6%. What makes this development even more exceptional is the pace at which emerging markets are growing. Brazil’s growth is slowing this year, yet it still continues to add jobs. Whereas developed multinationals seem to be cutting jobs, emerging market companies like VALE are planning to step up hiring over the next few years. While slowing growth is worrisome, the fact that employment rates are staying level is an auspicious harbinger for emerging market middle classes.
Disclosure: Author is long XOM; Immediate family is long XOM, EWZ, and VALE; a friend disclosed he may start a position in ACH within the next 72 hours.