Monday, October 18, 2010

Russia is the Most Attractively Valued BRIC Market

From time to time, Morningstar publishes content from asset managers, educational institutions, and registered investment advisers under our "Perspectives" banner. If you are interested in Morningstar featuring your content, please contact Online Editor Holly Cook at holly.cook@morningstar.com. Here, HSBC Global Asset Management says Russia is the most attractively valued BRIC market but all should continue to prosper from strong domestic consumption.

Strong domestic consumption in Brazil, Russia, India and China (BRIC) is a key driver of continued strength in these markets according to HSBC Global Asset Management, one of the world’s largest investors in this asset class with more than $28 billion BRIC assets under management. (1)

Nick Timberlake, Head of Emerging Market Equities at HSBC Global Asset Management and lead manager of the HSBC GIF BRIC Equity Fund, said whilst high debt levels would remain a drag on developed world growth for many years, key emerging economies now have the financial fire power to mitigate the effects of lower export growth through home grown consumption.

He argues that a rising middle class combined with low penetration and pent up demand for goods such as computers, mobile phones and automobiles, has unleashed strong internal demand within these markets.

“Amid a population of 2.7 billion people in the BRIC markets, representing approximately 40% of the world’s population, rising affluence is fuelling growing demand for goods. Domestic consumption is also a key driver of intra-BRIC market trade. The BRIC markets are no longer as heavily dependent on the developed world. For example, Brazil’s biggest trading partner is no longer the US but China,” Timberlake said.

Philip Poole, Global Head of Macro and Investment Strategy at HSBC Global Asset Management, added that strong domestic consumption is imperative in order for emerging markets to sustain a healthy growth differential relative to the developed world. “The good news is that we already have evidence of this and economic policies in markets such as China are increasingly focussed on supporting domestic consumption growth.”

HSBC Global Asset Management believes that following a correction within BRIC markets, valuations are now back at fair levels, with current prices presenting a good entry opportunity for investors with a long-term investment horizon.

Russia

Russia, currently the HSBC GIF BRIC Equity fund’s largest overweight position, is unloved and undervalued by the market at present, with the stock market trading at just 5x 2011 price earnings. However, with valuations expected to revert in due course, and with the fundamentals remaining sound, the opportunity for upside looks favourable, according to Ed Conroy, co-manager of the HSBC GIF Russia Equity fund.

Furthermore, prospects are enhanced by the supportive long-term investment case, as evidenced by low levels of government and personal leverage, rising investment levels and an abundance of natural resources.

Although better known for its oil production, Russia also has a particularly compelling story in terms of domestic consumption. Conroy pointed to a seven fold increase in Russian US dollar wages between 1999 and 2008. This has triggered a retail boom in Russia, which by global standards is still in its infancy. As a result, there remains an abundance of growth opportunities for manufacturers and retailers alike. To support this, evidence shows that consumer spending has been more resilient than the broader economy during the recent turmoil.

China

In China, thriving domestic consumption is being driven by numerous factors, not least rising urbanisation and an emerging and aspirational middle class. Other shifts are also taking place. Recent news of wage increases, although not ideal for China’s export competitiveness, should be positive for domestic consumption.

Furthermore, the recent announcement that China would end its de facto dollar peg and return to the managed float system could strengthen the renminbi by better reflecting its intrinsic value. This shift in policy is a positive development for China, according to HSBC Global Asset Management.

“Overall, the possibility of a stronger currency will help attract more capital inflow into China as investors can benefit from potential asset-price appreciation. We maintain the view that renminbi appreciation will be gradual,” Timberlake said.

“Companies with large foreign currency denominated debt, such as airlines, or companies with foreign currency costs but with renminbi revenue will benefit from appreciation. Although export-related companies will be negatively affected as a stronger renminbi will reduce export competitiveness, we are positive on the dominant companies as we believe they will be able to pass on the added costs. This is because the manufacturing market in China has consolidated following the fallout from the global financial crisis. Exporters that have survived and are still in business should have gained market share and increased their bargaining power with customers.”

Brazil

Jose Cuervo, manager of the HSBC GIF Brazil Equity fund, argues that sovereign discipline and relevant market reforms over the past 20 years, along with strong global growth over the past decade, have been responsible for fuelling the accelerated economic expansion in Brazil.

Citing a stable sovereign outlook and reduced inflation expectations as examples, Cuervo argues that this has set the platform for Brazil’s continued expansion and increased domestic consumption.

“This has become a more important driver of the economy, a trend that is set to continue, especially given increasing urbanisation levels, favourable demographics, improved access to credit and strong pent up demand,” Cuervo said.

In Brazil, Cuervo currently favours a range of domestic consumption oriented stocks with greater emphasis on areas less sensitive to interest rate increases.

India

The biggest underweight country in HSBC’s BRIC portfolio is India, which remains expensive in emerging market terms at 14.2x calendar 2011 earnings. Nonetheless, this economy is in robust shape. On Monday, Moody’s upgraded its local currency debt rating, citing government's recent fiscal reforms and a strong economy.

Sanjiv Duggal, manager of the HSBC GIF India Equity fund, said he had expected upgrades such as this, and anticipated further upgrades in the next 3-4 quarters.

Despite the market being expensive, he said there are still plentiful opportunities amongst consumption related sectors such as housing, auto and beverages.

A particular pocket of opportunity is passenger car sales. For instance, in the fiscal year ended March 2010, passenger car sales in India grew at the fastest pace in six years, up 25% to 1.53 million units. Meanwhile, the housing market continues to witness strong demand and Duggal continues to find opportunities amongst the under owned real estate sector.

Tuesday, June 22, 2010

Gap closes between fixed, variable rates

EXPECTATIONS that interest rates will be steady in coming months have narrowed the gap between fixed and variable loans.

A three-year fixed interest rate mortgage has dropped to within 16 basis points of the average standard variable rate, according to ratings agency Canstar Cannex.

''Following the Reserve Bank's cash rate increases and fixed rates remaining somewhat constant, fixed and variable are now almost sitting at parity,'' Canstar Cannex financial analyst Mitchell Watson said.

Advertisement: Story continues belowCurrently, the average standard variable rate is 7.38 per cent, while the average three-year fixed rate is 7.54 per cent.

The RBA kept interest rates on hold at 4.5 per cent this month, after global markets were spooked by the European debt crisis. The June pause comes amid a rate rise cycle that began in September last year, with the RBA lifting the cash rate six times since then.

Investors are pricing in a 4 per cent chance of a rate cut in July, according to Credit Suisse data.

By June 2011, the market is forecasting an interest rate of 4.75 per cent.

''Borrowers could see this as an opportunity to reduce the risk of fixing, but they need to be aware that fixing a home loan is a long-term decision and very much a gamble, so it really does depend on your own individual circumstances,'' Mr Watson said.

The average one-year fixed rate mortgage is 6.95 per cent, while the average two-year rate is 7.39 per cent. Longer-term fixed rate mortgages cost more, with the average four-year fixed rate at 7.87 per cent and the average five-year rate at 8.03 per cent.

Canstar Cannex estimates that a borrower on a three-year fixed rate loan in October would have spent $9600 on monthly payments so far, while a borrower who took out a three-year loan in April last year would have saved $1400.

Monday, June 7, 2010

Clean tech patents enjoy record quarter

The number of clean tech-related patents granted in the US hit record levels during the first quarter of the year, according to new figures released last week, further fuelling optimism that the sector is recovering strongly from the recession.

The Clean Energy Patent Growth Index report from intellectual property law firm Heslin Rothenberg Farley & Mesiti found that 379 clean tech patents were granted in the US during the first three months of the year, representing the highest quarterly value since the index began.

The performance marked an improvement of more than 50 per cent year on year and a 12 per cent increase in patents compared to the fourth quarter of 2009.

According to the report, fuel cell technologies dominated the list, with 208 patents granted during the first quarter, while the number of patents granted to solar and hybrid and electric vehicle technologies also rose.

In contrast, the number of patents granted to wind and biofuel innovations were down slightly on the previous quarter.

Car firms dominated the list of companies applying for patents, with Honda's 29 fuel cell patents and one solar patent ensuring it took the crown for the most successful clean tech patent applications during the quarter.

GM was in close pursuit with 28 patents granted, primarily in the fuel cell field, while Samsung came third with a collection of 21 fuel cell, solar and wind energy patents.

Toyota and Ford completed the top five with 12 and 11 patents respectively.

Monday, May 24, 2010

Ottawa housing starts jump 44.6 per cent in April

OTTAWA — New housing starts jumped 44.6 per cent in April to 506 units as Ottawa developers responded to strong market demand.

Canada Mortgage and Housing Corporation said Monday that there was strong activity in all housing classes, led by new apartment projects with single-family units, doubles and rowhousing all gaining.

For the first four months of the year, construction of 1,545 units is running 23 per cent ahead of a year earlier when the global economic crisis frightened buyers and builders.

CMHC market analyst Sandra Pèrez Torres said "The presence of first-time home buyer families continued to be felt as they kept demanding low density, more affordable types of dwellings."

The agency said that construction in Nepean led the region with healthy activity in all regions with the exception of Cumberland.

Across Canada, CMHC said the seasonally adjusted annual rate of housing starts was 201,700 units in April, up slightly from a revised 199,200 units in March.

"Higher multiple starts were nearly offset by a decline in single starts and rural area starts in April. As a result, total housing starts edged higher in April," said chief economist Bob Dugan.

The seasonally adjusted annual rate of urban starts increased by 5.1 per cent to 182,500 units in April. Urban multiple starts increased by 27.2 per cent to 98,600 units, while single urban starts decreased by 12.7 per cent to 83,900 units.

April's seasonally adjusted annual rate of urban starts increased 16.4 per cent in British Columbia, 6.7 per cent in the Prairie region, 4.5 per cent in Ontario, and 1.1 per cent in Quebec. Urban starts decreased 3.3 per cent in Atlantic Canada..

Monday, April 26, 2010

This dangerous mistake could cost you £10,000

Make this mistake and a £2,500 credit card debt will take you 50 years to pay off and cost you over £10,000...

If you've got credit card debt, chances are you think there's nothing wrong with only paying the minimum you have to every month.

You might even think it's pretty kind and generous of your credit card provider to allow you to do so.

But you'd be wrong.

Minimum payments
Here’s a quick illustration of how a credit card debt of £1,000 and an APR of 18.9% could potentially escalate if you only paid the minimum payment each month, and how topping it up with extra funds could make a huge difference:

Minimum payment (2%), plus an additional payment of:
Time taken to pay off debt
Interest paid

£0
33 years, four months
£2,769.10

£10
Six years, five months
£576.53

£25
Three years
£262.85

£50
One year, seven months
£135.02

£100
Ten months
£65.13


Compare credit cards at lovemoney.com

And here’s the same scenario for a debt of £2,500:

Minimum payment (2%), plus an additional payment of…
Time taken to pay off debt
Interest paid

£0
50 years
£7,852.38 (!!)

£10
13 years, five months
£2,769.26

£25
Six years, nine months
£1,453.60

£50
Three years, nine months
£807.90

£100
Two years
£421.13


Compare credit cards at lovemoney.com

As you can see, the more you pay off each month on your credit card, the quicker and less expensive it is to borrow on your card.

Obviously, the ideal amount you’d want to pay off is the entire sum, which would mean you’d never pay a penny in interest. But not everyone can afford to do this every month, making the ‘ideal’ situation far from reality for many people.

Related goal

Pay off credit card debts
How to destroy your credit card debt quickly and effectively.

Do this goalHowever, I want to stress that the more you can pay off, the better. Even relatively small amounts can make a massive difference.

For example, if you racked up £1,000 on a credit card with an APR of 18.9%,f it would take you over 33 years to pay it off and an extra £2769.10 in interest if you only made the minimum payment each month. This compares to just 10 months and £65.13 in interest if you can afford to throw an extra £100 a month at the debt.

So effectively, paying an extra £100 a month you will save more than £2,700 in the long run - and more than 32 years of debt repayments!

And bear in mind that's just on a £1,000 debt. The more debt you have, the more it will cost you. With £2,500 of debt racked up on the same credit card, only making the minimum payment means it would take you a startling 50 years to pay your debt off.

On top of this, you’d pay £7,852.38 in interest. That’s three times the original debt in interest payments alone!

Adopt this goal: Pay of credit card debts

Serena Cowdy looks at the perils of withdrawing cash with your credit card
Every little helps!
So, the message may sound rather like an Oxfam appeal, but extra payments of just £10 a month would - in the end - save you a massive £5,083 in interest on a debt of £2,500. That’s enough to buy a decent second hand car. Food for thought indeed.

So that’s how minimum payments can affect the time taken to pay of your debts, but what about your APR?

APRs are often overlooked in terms of how they can affect your debt, and while we’re seduced by the prospect of 0% balance transfer offers, the rate of interest you’ll pay when your introductory offer expires can prove crucial.

So, as an illustration of how your APR could affect your debts, here’s how the interest could rack up on a £2,500 credit card bill depending on your APR, taking into account payments of £100 a month:

APR
Time taken to pay off debt
Interest paid

12.9%
Two years, four months
£365.83

14.9%
Two years, four months
£437.17

18.9%
Two years, six months
£593.48

27.9%
Two years, 10 months
£1,053.91


Compare credit cards at lovemoney.com

As you can see, although there is a less significant impact on the time taken to pay your debt off, the APR on your credit card could make a significant difference in the amount of interest you end up paying overall.

For example, the difference in cost between a credit card with 12.9% and 18.9% APRs during the time taken to pay it off is £227.65.


Rachel Robson explains how negative order of payment works and how to avoid it.
It’s not exactly rocket science, but the costs get higher as the APR rises, and the difference between interest payments for a credit card with 12.9% and 27.9% APRs is £688.08 - enough for a decent holiday.

Higher APRs approaching 30% are normally associated with credit cards for people with less-than perfect credit ratings, or store cards. If you’re not careful, borrowing using one of these could end up costing you a lot more than you bargained for.

The best cure for credit card debts is to transfer them onto a 0% credit card which will reduce your overall interest payments significantly. Get a best buy 0% card from lovemoney.com.

If you need to spend on a credit card and don't have enough to pay off the balance in full, then get a 0% on purchases card instead. Find out more by reading Top credit cards for spending!

Tuesday, March 30, 2010

Friday, March 19, 2010

Get your kids to fund their nest eggs

Naturally, affording retirement isn't an issue that weighs heavily on the minds of young people just starting off in the workforce. So it's no surprise that only 28% of workers under age 25 contribute to employer-sponsored retirement plans, as reported by tax information service CCH.

But as a parent, you don't want your child to end up behind. And with fewer workers being offered corporate pension plans, individual savings are increasingly important in determining quality of life in retirement. As for convincing your kid of this ...

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Ultimate Guide to RetirementGetting started401(k)s & company plansInvestingAnnuitiesIRAsSelf-employment plansPensions and benefit plansSocial SecurityInsuranceEstate planningLiving in retirementGetting helpShow the cost of waiting

You know that time is a powerful factor in building wealth. But does your child? Demonstrate with numbers: A 25-year-old saving $250 a month before taxes -- the equivalent of $188 after taxes in the 25% bracket -- will have $656,000 by age 65, assuming a 7% average annual return; if he instead waits until 35 to start saving, he needs to stash more than $500 a month to get to the same amount.

Use the calculators on our website, at cnnmoney.com/tools, to run more scenarios. Share your own experiences too. If you've been a disciplined saver, explain what it means for your retirement; if not, say what the consequences might be, says Atlanta financial planner Mary Claire Allvine.

Explain the incentives

Many young adults don't realize how much money they're leaving on the table if their company offers a savings match and they're not contributing. Show your kid: If he's making $50,000, a match of 50¢ on the dollar up to 6% of salary is worth about $1,500 a year.


0:00 /1:07401(k) match coming back?
If your kid argues that he won't be at the job long enough to vest, explain the other benefits of employer retirement plans, such as pretax contributions and deferred growth. And if you can afford to, create your own match by contributing to an IRA on your child's behalf contingent on his saving, says Hadley, Mass., financial planner Allen Davis.

Play financial adviser

Offer your wisdom in choosing investments, which can be intimidating to a beginner. Not confident in your own knowledge? Suggest a target-date mutual fund, which adjusts the mix of stocks and bonds to grow more conservative as retirement nears. Or have your kid pick stock and bond index funds in an 80/20 mix, an allocation that won't need to be changed for a decade or so.