Tag Archives: MICC

Strategy: factors to watch this week

Last week’s mixed global macro data should continue to support emerging markets this week, but what are the news triggers that traders will be watching?

While our favorite economies in Asia, Latin America and Eastern Europe are still chugging along, they each remain fairly reliant on the health of the G3 to keep their growth trends on track.

U.S. numbers (NFP, jobless claims, housing starts) remain sluggish but European data (factory orders and especially outstanding German PMI) signal that times are better in the land where a few months ago we all thought the dreaded “Black Swan” had come to roost. The ECB meeting confirmed that Europe is climbing the worry wall and despite austerity talk should continue to support global expansion.

Commodity prices remain supportive. We expect to see continued evidence that iron ore and steel prices in Asia are firming. Last week’s comments from RTP (quote) and Russia’s Norilsk (NILSY, quote) tell me end demand is there.

Valuations are far from stretched. Although emerging markets retail and consumer names are usually relatively insulated from the global macro cycle, they also look like the most vulnerable trades right now. Stay focused on value and free cash flow generation when you play the emerging cellular companies like VIP (quote), CHA (quote) and CHU (quote), not to mention the frontier communications giant MICC (quote).

Next week we get more follow-though in Europe on industrial production. The U.S. markets will of course focus on this afternoon’s Fed policy meeting and then the consumer inflation and retail sales numbers on Friday.

In emerging markets, keep looking for a whole bunch of data to come out of China. July CPI and PPI numbers come out tonight and should steal the spotlight from retail sales and industrial production releases.

Inflation is really the big topic in China right now. If inflation remains significant, there is not much chance Beijing will relent on its recent lending curbs. But if prices look stable, there is a chance we may see the more supportive policy environment that China bulls are hoping to get.

And of course it’s still earnings season. Big emerging markets releases to watch include TTM
(quote) and LDK (quote) today, PBR (quote) and a bunch of Brazilian utilities tomorrow, brewer ABV (quote) Thursday and Ambassador favorite FBR (quote) on Friday.

Emerging Markets Insight

Millicom gains ground in Africa, LatAm

Global cell phone giant Millicom posted a satisfying quarter — roughly in line with consensus — as its business in Africa and Latin America continued to expand.

The Luxembourg-based company earned a profit of $436 million in the second quarter, up 17% on a year-over-year basis. Analysts had expected a marginally smaller number.

Likewise, Millicom (MICC, quote) slightly beat the Street on revenue, which expanded 14% to $929 million thanks to increased subscriber share in Africa and South America.

MICC is a somewhat unique company because it provides investors with exposure to a wide range of emerging and frontier markets that are otherwise hard to play. The company has roughly a 30% share of African cell phone usage and 53% of the Central American market.

Emerging Markets Insight Stocks

Trading the Globe: Frontier Markets

We talked about several frontier markets — investment opportunities like Vietnam, Tunisia, and the United Arab Emirates — this morning on CNBC’s Trading the Globe.

Frontier markets are by definition somewhat difficult for investors to get involved with. They may not yet have built out their capital processes, or may simply be somewhat obscure. Either way, trading volumes are usually spotty in all but the biggest of the large-cap names on these exchanges, which can make it hard to move in or out of these stocks quickly.

However, the rewards can be spectacular. These tend to be great stories both from a demographic perspective and in terms of growth. Many also have vast mineral wealth waiting to be unlocked.

One classic frontier market story I would highlight is Millicom (MICC), one of the big global cell phone companies. It does business across Africa, Central America and Asia, so serves as your proxy on a wide range of frontier consumer markets.

Africa

African markets as a whole are doing well. The World Cup helped bring investor attention to the region, and these markets are not highly correlated to the problems that much of the rest of the world has suffered in the last few months.

Mutual fund flows to Africa have been positive for the last 43 weeks in a row, which means these countries are going in the right direction as investment destinations. Money is flowing in, which improves liquidity and visibility, which encourages more money to flow in.

Kenya’s 20-share benchmark index is up 34% this year, Nigeria is up 22% and gold-rich Ghana is up 18%. Like Nigeria, Tunisia is potentially extremely rich in oil and could be looking at a real estate boom soon as its young population look for housing. The country is also interesting because it is so close to Europe.

Unfortunately, there are few easy ways for U.S. investors to play in Tunisia. The big stock is Banque International Arabe de Tunisie, which trades in London but not over here.

You can get into the local oil industry by buying one of the small-cap Canadian companies that do business there. Candax Energy (CXEYF) is a good example: very small, very thinly traded, but a real pioneer player:

Vietnam

Vietnam has become a huge and growing country: 90 million people, 26% of which are under age 14. Tourism is a key industry, which is helping to spread the use of English as a business language.

Although the country went its own way for decades, it joined the World Trade Organization in 2007 and currently has a per capita GDP roughly equivalent to Nicaragua’s — and a little below India’s.

Goldman Sachs expects to see growth of 8.2% this year. The downside of this is inflation, which came in at 8.69% in June.

There are no Vietnamese ADRs. The way to play this country is the Market Vectors Vietnam ETF (VNM), which started last year:

The United Arab Emirates

The UAE is tiny (just 5 million people) but rich in oil wealth. The country has the world’s seventh-largest crude reserves and has used that income to build out massive infrastructure in places like Abu Dhabi and Dubai.

GDP is a stunning $200 billion. Unfortunately, the country has been hit hard over the last few years by a combination of falling oil and real estate prices, which have left it much less of a go-go destination than it was before the recession.

Once again, the big stock in Dubai is one you cannot easily trade here. Depa is listed in London, but not in the United States. Instead, you need to look to regional ETFs like GULF and MES to get into these companies and play the Dubai story. There are no ADRs:

Trading the Globe Video

Trading the Globe: Avoid emerging market "whiplash"

On CNBC’s Trading the Globe this morning, we talked about how investors can avoid a case of whiplash after a volatile trading week like the one we’ve just lived through.

All four BRIC markets are down year to date now and China in particular is not looking terribly bullish. But there are still plenty of opportunities out there if you keep yourself diversified and find a balance between commodity and consumer plays.

The Diversified Portfolio

A good basic emerging markets portfolio should be 50% allocated to consumer and technology stocks, 20% banks and 30% commodity producers. This gives you exposure to an economy from both the domestic and the export side and provides some protection from downside risk.

Aim for geographical diversity as well as a good mix of sectors. If your portfolio is all Russian oil or Chinese search engine companies, you are probably setting yourself up for a wild ride.

In the consumer space, some names to look at are Brazilian grocery operator CBD and food vendor BRFS, Indian software company Infosys (INFY) and global cell phone carrier Millicom (MICC).

On the banking side, Banco Santander (BSBR) and India’s ICICI (IBN) are a good start. Credit usage throughout emerging economies is booming, so you want some exposure here.

When it comes to your commodity allocation, consider iron ore giant VALE, Gold Fields International (GFI) and integrated steel producer Mechel (MTL).

Know the Warning Signs

You can also look into emerging markets ETFs as a way to diversify your holdings and get access to companies that are hard for U.S. investors to trade. It is generally easiest to drill down by national market — new iShares are coming out all the time — but as ETF strategies get more sophisticated, some sector-driven opportunities are emerging. (For example, the small-cap Brazil ETF, BRF, is more concentrated in consumer stocks than EWZ, its commodity-driven large-cap equivalent.)

Beware: the most liquid names tend to get liquidated first when the markets turn, and afterward it can take awhile to rebuild. When a stock that used to trade 1 million shares a day suddenly drops to turnover of 500,000 or 300,000 shares a day, that’s trouble.

And watch your forex indicators. Currencies are your canaries in the coal mine because they tend to start moving around a few weeks before a big move in the stock market. We saw this last week.

Finally, remember that this is always going to be a volatile asset class. Investors can cushion the ride, but as long as the market is “emerging,” it will get bumpy from time to time.

Trading the Globe

Emerging Money 2010 Preview: South Africa

South Africa is still considered a resource economy, but it has moved well past that in recent years to have some of the strongest banks in emerging markets and a consumer growth story that is as impressive as the resource story.

The country faces significant political pressures still from the apartheid regimes, but these headwinds to specific companies have abated significantly in last five years. In 2010, the consumer is still under pressure, and rand strength is an issue for exporters, but equities are not expensive.

The economic recovery will continue (+3 percent GDP), and expect easy policy on rates through the year. EPS growth will be solid albeit from a low base (-28 percent fall in 2009).

Emerging Markets Insight HOME Market Updates Markets

World Cup May Have Kicked South Africa Out of Recession

South Africa, which will host the World Cup in 2010, has seen its economy expand an annualized 0.5 percent in the third quarter after three quarters of contraction, according to Bloomberg.

To prepare for the massive event, the country has increased spending ($115 billion over three years) on building and renovating 10 stadiums and roads,

Emerging Markets Insight HOME Market Updates Markets

Cellular: How to Play the Consumer in South Africa

Global telecom operator Millicom International Cellular (MICC) gives you great exposure to Africa and and Central America.

This is a company who is increasing margins by pushing through more value added services to a growing customer base. Revenue breakdown is 40 percent in Central America, 30 percent in South America and 22 percent in Africa.

The stock has been under intense pressure and this may be a good entrance point. Management is strong and the company has solid position in some of the smaller markets in which it operates.

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