Tag Archives: china

The Market Has Discounted The Biggest Growth Story For The Next Decade

China slowed-growth worries have created a buying opportunity for long-term China. Relative to other international equities – China has value in developed as well as emerging market funds. Investors should consider allocating more capital out of the US which is trading at premium valuations into China trading below historic valuations. Haven’t you heard? Chinese GDP growth is slowing – run for the hills. These seems to be the consensus as Chinese equity markets have taken a plunge YTD . Examine the five-year chart of some popular Chinese ETFs (exchange-traded-funds). (click to enlarge) This dip has created an excellent buying opportunity for certain regions of the world, with China being my top pick. To start I took a look at the major countries and examined the broad ETFs that tracked the respective countries. From there I looked at the sales growth in the funds and removed negative sales; since the focus here is on growth at a reasonable price. From there I accessed data from Worldbank to gather historic and future estimated GDP growth. The results are below, filtered on an average PEG score from low to high. (click to enlarge) China remains my top pick because while growth is slowing; it is still growth! The next four year average growth estimate is still above 7%, with a P/E that is roughly half of the S&P 500. The middle-class continues to expand and disposable income has been on a healthy upward trend. Funds that should do well in the next decade include: SPDR S&P China ETF (NYSEARCA: GXC ), iShares China Large-Cap ETF (NYSEARCA: FXI ), iShares MSCI China ETF (NYSEARCA: MCHI ), and iShares MSCI Hong Kong ETF (NYSEARCA: EWH ). The first three funds are very similar as they are invested primarily in China emerging markets, whereas is 94% developed markets and only 6% emerging. Investors may want to consider one developed and one emerging – which both look attractive after the market correction. If you just want broad exposure to the Asia Pacific region I would recommend the low expense and reasonably valued Vanguard Pacific VIPERS (NYSEARCA: VPL ). This fund is 63% Japan, 18% Australia, 17% Asia developed and 2% Asia emerging. Another interesting way to play China while taking on more firm-specific risk would be to buy a familiar U.S. company with exposure to China. The chart below shows restaurant companies operating income across varied geographic regions: (click to enlarge) My favorite picks in the above list are Starbucks (NASDAQ: SBUX ) with a PEG of 1.6 and Yum! Brands (NYSE: YUM ) with a PEG of 1.7. Other ideas to buy at a discount to the recent selloff with exposure to China include Boeing (NYSE: BA ) who will most likely be unscathed by slightly less growth in this region. Resort companies such as Las Vegas Sands (NYSE: LVS ) or MGM Resorts International (NYSE: MGM ) have fallen more than I would have expected considering the peculiar fact that people tend to continue to gamble even in periods of economic downturns. My prediction is that gambling in the Macau region will pick up and buying now is a good opportunity for the next decade. (click to enlarge) I’m sure there are numerous ways you can conjure to play a re-bound in the Chinese sell-off. I’m interested to hear your comments on what you think the best way to play a rebound in China is. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in FXI,GXC,SBUX,YUM,LVS, MCHI over the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Why To Stay The Course In This New Age Of Volatility

Stocks tumbled again last week, as investors digested further evidence of slowing growth in China and numerous, somewhat conflicting, statements from various Federal Reserve (Fed) officials. Investors today find themselves in a bind of sorts, caught between two somewhat contradictory risks: an emerging market-induced slowdown in the global economy and the prospect of an upcoming interest rate hike by the Fed. So, it’s understandable that many are tempted to head for the doors and abandon stocks and other risky assets. But rather than exit the markets, investors should consider staying the course and seek potential opportunities along the way as we enter the Fall season, while recognizing that more volatility could be ahead. As I write in my new commentary, ” Time to Take Stock – and Advantage of Pockets of Value ,” at BlackRock, we still favor a portfolio tilted toward equities, select credit, tax-exempt bonds and inflation protection through Treasury Inflation Protected Securities ( OTC:TIPS ) rather than physical commodities. In addition, we view the recent sell-off as an opportunity to take advantage of some pockets of value that have emerged , as well as assets that may be well positioned for today’s “Fed hike, but still low-growth environment.” Here’s a look at some of these market segments: Market Segments to Consider 1. Stocks in International Developed Markets, Particularly in Europe European stocks remain attractively priced and the eurozone economy is improving, as demonstrated by data accessible via Bloomberg. Last week, such data revealed that euro area unemployment fell to the lowest level in three years. In addition, given stubbornly low inflation and investor concerns over global growth, there’s also the prospect for an extension of Europe’s current quantitative easing program, as many in the media speculated last week. 2. Large-Cap, Cyclical Stocks in the U.S. In the U.S., I believe large-cap, cyclical-oriented companies look to be in a good position to withstand the start of the Fed’s tightening cycle. The U.S. economic outlook is less than ideal, but U.S. economic data in recent weeks still suggest a decent second half to the year . 3. Credit Within Fixed Income Despite recent equity market volatility, high yield has stabilized over the past week and yields remain attractive, according to data accessible via Bloomberg. Investment-grade credit is also looking cheap, the data show, although investors may want to hold off until later this Fall, given pending supply. 4. Tax-Exempt Bonds Finally, tax-exempt bonds are offering compelling yields relative to taxable instruments of the same maturity, based on my analysis of the Bloomberg data. Despite the recent rise in volatility, municipals have held up relatively well. To be sure, there are areas of the market that I remain cautious of, including U.S. Treasuries and commodities. On the former, with inflation expectations still near recent lows, investors may want to get duration through TIPS rather than through traditional Treasuries. Commodities, meanwhile, have struggled all year and should continue to be pressured by sluggish growth, oversupply and the potential for a Fed-induced strengthening of the dollar. Investors also should prepare for more bumps in the road. Though the recent correction has returned some value to the markets , I expect volatility to remain elevated until either global growth stabilizes and/or investors get some clarity from the Fed. This post originally appeared on the BlackRock Blog.

Big Oil Portfolio – Reviewing It After The Recent Lows

Summary Like all other oil investments, the Big Oil Portfolio has taken a significant hit over the past few months. The fundamentals of none of the portfolios in the company has changed, instead, the only that has changed has been oil prices. The portfolio has a large amount of cash at hand should future opportunities present themselves. Introduction I have not provided an update for my Big Oil Portfolio since July . However, over the past few weeks, oil (NYSEARCA: USO ) has taken a significant hit dropping down to recent lows of less than $40 per barrel. The goal of this article is to take another look at the Big Oil Portfolio since the last update. Last Five Year Oil Prices – Bloomberg Oil prices remained relatively constant from 2011 – 2014. However, since reaching a peak, oil prices took a major hit dropping down to a bottom in January 2015. Oil prices bounced back up and then dropped back down forming a double bottom in March 2015 before recovering to around $60. In recent weeks, two majors things have weighed down on the market. The first was slowing economic growth in China, a major economic producer. The second was fears of a nuclear deal being signed with Iran which would result in a significant market glut. This resulted in another drop down in oil prices down to less than $40 per barrel followed by a recent small recovery. Goal The Big Oil Portfolio was originally created during a period of higher oil prices with the stated goal of building a strong portfolio for a recovery in oil prices. The goal of the article was to take a hypothetical person with $100,000 to invest in oil stocks. In this case, we will assume that you want to invest in large oil companies that are financially secure and will provide investors with income for many years to come. There are several reasons to invest in financially secure large caps during such a crash. However, the biggest one are the two words, ‘financially secure’. Should the oil crash last for longer than expected or get worse than expected, these companies will be able to last significantly longer than the competition. Portfolio Name Number of Share Purchase Price Current Price ExxonMobil (NYSE: XOM ) 150 $86.87 $72.48 Chevron (NYSE: CVX ) 200 $106.62 $76.62 Royal Dutch Shell (NYSE: RDS.A ) 100 $62.16 $49.51 ConocoPhillips (NYSE: COP ) 100 $65.62 $47.19 Schlumberger Limited (NYSE: SLB ) 100 $92.69 $74.96 Phillips 66 (NYSE: PSX ) 100 $80.99 $77.20 Total S.A. (NYSE: TOT ) 430 $52.80 $44.11 Total Amount Invested: $99,894.50 Approximate Dividend Received: $971.00 Annual Dividend Income: $3884.95 Portfolio Cash: $14,578.45 Portfolio Discussion For those who are new to the realm of cyclical business, especially ones like oil where an oversupply of a few percent can cause a 50% drop in price, numbers like those seen above can be quite scary. However, it is worth pointing out that the numbers seen above solely exist because of the change in the price of oil. In fact, with the exception of the drop in oil prices, which has fallen approximately 20% since the last article, the fundamentals of none of the other companies has changed. In fact, the only thing that has changed fundamentally in the portfolio since the original article was the decision to sell Apache Corporation (NYSE: APA ). Apache Corporation is a strong corporation with solid potential, however, the thing I disliked about it is the fact that the majority of its assets are located in the United States. The goal of the portfolio is to form a broad portfolio of stable oil companies with exposure to a number of areas and Apache Corporation did not fit within that mandate. Purchases Now that we have discussed the changes in the portfolio, the portfolio now has $14,578.45 in cash sitting around. Recent factors have combined to make the perfect storm of oil prices. SSE Index Crash – Thomson Reuters The above image shows the Chinese SSE stock index. Partially due to a slowing economic growth rate and partially due to fear of a bubble, the Chinese stock index peaked around June before dropping sharply. As a major consumer of oil, fear of a decreasing Chinese growth rate has also hurt oil prices. This has been combined with recent ideas of a potential nuclear deal between the United States and Iran. Should Iran bring its production back online, that could result in a huge amount of new production that could cause a significant oil surplus. This money will be used to purchase 252 shares of the Lehman Aggregate Bond Fund (NYSEARCA: LAG ). The Lehman Aggregate Bond Fund invests in safe bonds with a modest dividend paid on a monthly basis. More so, the fund maintains a relatively solid price and remains a solid holding of cash for potential future purchasing opportunities. Future Market Situation Now that we have talked about the portfolio’s goals along with its holdings and discussed the portfolio along with its purchases, it is now time to talk about the true driver of this portfolio. The future market situation. Because in the end, it’s really oil prices that move this portfolio around. Annual Change in U.S. Crude Production – EIA The above image shows the change in U.S. crude production. Since 2008, as a result of growing shale production, American production has been steadily increasing. This surplus is what led to the current oil crash. However, in recent weeks, U.S. oil production has been steadily decreasing. The spending cuts are finally starting to have an affect and production is starting to decrease. This is starting to solve the overall oil supply. I expect the recent lows in oil production to potentially be tested again but I would be surprised if prices fall any distance below that. Production has started slowing down while demand, driven partly by lower prices, has continued increasing. This should help cause a recovery in oil prices. Conclusion The Big Oil Portfolio is made of a number of strong oil majors several of which have a long record of paying dividends. These companies have a strong dividend that they will be able to continue paying despite the recent slump in oil prices. However, decreasing economic growth in China coupled with the potential of higher oil production from Iran has caused oil prices to take a significant hit these past weeks which has also affected the portfolio. The portfolio does however have a good amount of cash in reserve should an opportunity present itself. This cash along with dividend growth should help support a recovery in the portfolio when prices eventually recover. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.