Covestor model manager Vivian Lewis offers her daily international briefing. Note that not all companies are held in the International Yield Covestor Model. Rather, some are just International Companies that Vivian tracks.
Market Update for Tuesday July 19th, 2010
US data is actually expected to be woeful. Especially existing home sales (Friday) – forecast to fall 10% in June (which if they did, would only mean a 5% below average result). Housing starts out Tuesday are expected to drop a further 2.2% after a 10% drop in May. Note that a number of factors have conspired to bring the starts down here – the end of the homebuyer tax credits, difficulties in processing loans, BP's oil spill. It is therefore impossible to detect the true underlying trend.
Now all the while, US consumer spending has been rising, industrial production and manufacturing accelerating and private sector jobs growth have increased (albeit modestly). The point is that despite these swings in confidence, nothing changed in the real economy–it still accelerated and thus far we've witnessed a v-shaped recovery.
With the US dollar weakening against the Yen, the Swiss Franc, and the Euro, I think we should be shifting out of these currencies into ones which have also lagged, notably Pounds Sterling.
Interest rates have been raised by Thailand, contrary to forecasts. Rates are likely to be raised again by Israel as soon as next weekend. Governor Stanley Fischer will be coming to NYC to address the Israeli Investor Conference Dec. 1, by which time there may have been further rate increases.
Followed Securities
*Baring's India portfolio for its last fund was built up starting in 2007 with help from ICICI Ventures, a sub of ICICI Bank (NYSE: IBN). Together they bought Karvy, an Indian stockbroker, for $44 mn. R.P. Singh, Indian Industry Secretary, determined that IBN should not be handicapped because of foreign shareholding, since it is incorporated in India. However other parts of the babu bureaucracy disagree.
*The board of Portugal Telephone (NYSE: PT) will go into overtime (presumably to break a tie) starting their meeting at 5 p.m. Portuguese time on the bid for its half of Brasilcel, the company controlling Vivo of Brazil which Telefonica wants very much to buy. So we may have to hold on over the weekend before learning the outcome. We like PT for its 7% yield regardless of the Spanish.
Deep vein thrombosis drug Arixtra from GlaxoSmithKline (NYSE: GSK) faces a global generic challenge by Dr. Reddy's. The Indian firm will buy from Australia's Alchemia fondaparinux sodium for injection (the generic version of GlaxoSmithKlines jab)for all territories outside of North America. They already have an earlier deal for North America. The amount of royalty to be paid was not released. RDY may wind up selling the drug thru third parties. GSK and RDY are both in the model portfolio.
A potential threat to GSK's OTC obesity drug Alli was Vivus' (VVUS) more risky prescription drug combo (Qnexa) which was rejected by the SEC's advisory panel yesterday because it may have psychiatric or cognitative side-effects to say nothing of causing birth defects. Fat-fighting is not easy. This news should keep the GSK buying panic going another day.
Aberdeen Global Income Fund (AMEX: FCO) has been nibbling at Asian emerging markets. FCO has now 3.2% of its assets in Indonesian government and private sector bonds, 90% of the lot dollar denominated. It has 2% of its assets in Philippine debt, all in dollars, and 82% issued by the Manila govt. And it put 1.1% of assets into Kazakhstan bank $ bonds.
Over at Bank of Nova Scotia, Scotiabank (NYSE: BNS), there have been Q2 investments in Thai banking. BNS's 49% sub Thanachart Bank acquired 48% of Siam City Bank and then merged with it. Canada's BNS put about C$650 mn into Thanachart to maintain its 49% stake. The combo is now the 3rd largest bank in Bangkok and the 5th cor Thailand as a whole. The deal, according to Michael Goldberg of Desjardins Securities, is “accretive to earnings.” Current yield is over 4%.
Both FCO and BNS got their feet wet in Latin American emerging markets. BNS picked up another Latin, R-G Premier Bank, last quarter, from the FDIC, in Puerto Rico, USA. According to Mr. Goldberg, this gives it critical mass with a 10% market share. We own BNS for its Latin America prowess but Thailand and Puerto Rico are fine.
With a drop in 2009 sales of 60% and a drop in EPS from 48 cents/sh to 2 cents, be grateful we bailed out of WSH Holdings (NYSE: WSH), WH, Chinese maker of drilling pipe for oil and gas exploration. WH confronted both US “anti-dumping” protectionism and Chinese price-controls as oil prices cratered and steel prices rose, leading to hugely mounting debt by the Chinese firm to carry its remaining non-US customers domestically and in the Stans.
Vivian plans to stick with SLB (Dutch Schlumberger (NYSE: SLB) which is really French) and RIG (Swiss Transocean (NYSE: RIG) which is really American) in the oil exploration business, having also sold TS (Luxembourgeois Tenaris (NYSE: TS) which is really Italo-Argentine.).Exploration service firms are very international apart from WH.
