Emerging Markets

This Kenyan start-up is reinventing the family farm for the 21st century



Source: Markit Opportunity
To most American shoppers, there's nothing remarkable about a red onion in the produce aisle at the closest big box retailer.
But it's a huge victory for Ashley King-Bischof's technology. King-Bischof is the CEO and co-founder of Markit Opportunity, a Nairobi, Kenya-based start-up that connects small farms to big corporate buyers and exporters.
It's a big untapped market opportunity, hence the company's name. Family farms are about 90 percent of all farms worldwide, according toUnited Nations research. In Kenya 75 percent of workers make all or part of their livelihood from agriculture, which constitutes 18 percent of the nation's economy, according to the United States Agency for International Development.
Not only does Markit Opportunity improve the quality of the goods at your local box store, it elevates the earning potential of Kenyans, especially women. The company is currently in the process of incorporating their platform with one of the largest exporters in Africa to sell fine green beans, a huge crop for export in Kenya.
Markit Opportunity provides three different technologies. Farmers get a text-messaging product that lets them exchange simple numerical codes with agents for each transaction — similar to how TV shows ask you to text a short numerical code to vote for your favorite singer. Agents get an Android app to manage those communications with farmers, and buyers, like big box retailers, have access to real-time inventory and transaction from small farmers.
The tools help level the playing field between small local farms and large established farms when international buyers look to buy crops responsibly.
"At the beginning of the chain are people, often women, that are working incredibly hard, that aren't getting to keep much of the value they create, because it's a complex supply chain," said Ryan Ross, a program director at the Halcyon Incubator in Washington, D.C., which supported Markit Opportunity. "This could increase the quality of life for an incredible amount of people in the area."
A Kenyan man carries a bag of onions at the Marikiti market in Nairobi
Simon Maina | AFP | Getty Images
A Kenyan man carries a bag of onions at the Marikiti market in Nairobi

More transparency between buyers and farmers

Before products like Markit, retailers bought produce through a circuitous system of buyers, brokers and other middlemen. Farmers had no visibility into the process, so they were often selling their crops for less money than they could have gotten — and far less than the price retailers are willing to pay.
"Their whole livelihoods are dependent on their crops," King-Bischof said. Sugarcane, maize, potatoes and bananas are among Kenya's top crops, according to the UN. "Storage facilities, transportation are all locked up in the investments of their farm. Working capital is a big concern for them."
From the other end, the old system made it difficult for stores and consumers to verify the source of their produce and determine that it met the right international safety standards.
"In Kenya .... [many] farms are small farms in very rural areas without a lot of infrastructure — access to power, running water, roads. It's a fragmented system geographically," King-Bischof said.
The penetration of mobile phone technology, on the other hand, is about 88 percent in Kenya, according to government data.
"We are using technology that is accessible to them," King-Bischof said.
Now agents can text farmers to ensure that their crops are in demand, free of spoilage and using the right levels of pesticides for their end market, said King-Bischof. And farmers can have a long-term relationship with steady prices, or pick up contracting gigs when they can. The platform also provides farmers with access to financial services like loans and insurance.
Ashley King-Bischof, co-founder and CEO of Markit Opportunity, on location
Source: Markit Opportunity
Ashley King-Bischof, co-founder and CEO of Markit Opportunity, on location

Hustle and connections

Ross said King-Bischof's willingness to get her hands dirty is a big driver of the company's success.
"With Ashley, before she even got to the program, I would see pictures of her on Facebook in the back of a vehicle shipping onions," Ross said. "That's the kind of hustle you need. It's incredible to see how hands-on she was able to get at an early stage."
King-Bischof, in turn, credits much of the company's rapid success to the connections she made at Halcyon, which houses eight social entrepreneurs for five months at a time in Washington and provides them with stipends and support from Amazon Web Services, Deloitte, KPMG and other major business brands.
"It's a really great example of public-private partnership," said Kate Goodall, the chief operating officer of the S&R Foundation, which operates the incubator. "It provides fellows with headspace so you can breathe and focus on what you're doing. And something we call facilitated serendipity: access, which is really about connecting with great problem solvers."
That's also where King-Bischof met co-founder Zeluis Teixeira, or Ze for short, who is using his expertise as a former bank executive to strike global deals for Markit Opportunity. Teixeira, who has lived in developing nations around the world and has familial roots in agriculture, has a vision for how Markit Opportunity can scale globally.
"With Ze, he has an ability to pivot, do it so seamlessly, and not get down about leaving a lot of work on the table," said Ross, the director of Halcyon.
The two have dramatically different backgrounds. King-Bischof was inspired to create the company after combining knowledge from her Ivy League economics degree, work consulting for NGOs and experience at companies like Yelp and Kiva.org, where she worked in the field in Cameroon. But the pair have one important quality in common, said Ross.
"They have resilience," he said. "It's something you can't just put on an application. You see it in the day to day."



India Stands as Top Investment Among Emerging Market Consumer Plays


NEW YORK (TheStreet) -- The emerging market consumption story is compelling, but perhaps no market is as attractive as India's. According to Nick Smithie, chief investment strategist for Emerging Global Advisors, investors are "craving" reforms in emerging markets that will accelerate non-inflationary growth. 
That's precisely the case in India, which has a falling fiscal deficit, declining current account deficit and falling inflation. Consumers in the country also have more money in their pockets, he said. 
Don't forget about the sheer size of India's population, standing at more than 1.25 billion people. The consumption story is very compelling and will be a multi-year theme for the country, he explained. 
As a result, Smithie likes EGShares India Consumer ETF (INCO) . 
INCO Chart EGShares India Consumer ETF INCO data by Charts
But there will be investors who don't want to buy into just India. That's why there's also EGShares Emerging Markets Consumer ETF (ECON) . With over $1 billion in assets, it's a "concentrated fund based upon the consumer staples and consumer discretionary sectors," he said. 
The ETF is diversified by country and gives investors direct exposure to emerging market consumers, with 30 large cap stocks. 
For those investors who want more diversity, but still want exposure to the emerging market consumer, they can consider theEGShares Emerging Markets Domestic Demand ETF (EMDD) . 
While maintaining exposure to the consumer discretionary and consumer staples sectors, investors will also gain exposure to the healthcare, utilities and telecom industries, Smithie concluded. 
All three ETFs are positive over the past year, with the EMDD and ECON up 12.2% and 5.35%, respectively. The INCO has performed the best, up a robust 64% in the past 12 months. 



 Rothschild Seeks Partners in Fast-Growing African Markets
NM Rothschild & Sons Ltd., the world’s largest family-owned financial advisory firm, is seeking partners in Africa’s largest economies to help it seize opportunities as growth accelerates.
Rothschild doesn’t intend to have African offices outside of Johannesburg, “so we either have to work from a distance and fly in and out or have partners -- we plan to do both,” Martin Kingston, its deputy executive chairman in South Africa, said in a phone interview from the city on Oct. 10.
Key markets for Rothschild include some of the continent’s fastest-growing, in Nigeria, Kenya, Angola, Tanzania, Mozambique and Ivory Coast, Kingston said. Sub-Saharan Africa’s economic expansion is forecast at 5.8 percent next year from 5.1 percent this year, according to the International Monetary Fund’s latest research. Nigeria may grow 7.3 percent in 2015 while Ivory Coast may top 7.9 percent, the IMF said Oct. 7.
“There is a huge amount of money being mobilized for Africa and there’s going to be significant opportunities to provide support and advice,” Kingston said. The industries Rothschild is focusing on include financial services -- both banks and insurers -- infrastructure, telecommunications, consumer and retail, plus natural resources.
“Where we have clients that see opportunities in Africa, we’ll work with them,” Kingston said, giving Rothschild’s work with Rio Tinto Plc (RIO) in Guinea and Vodacom Group Ltd. in the Democratic Republic of the Congo as examples. “Where we have particular expertise, like ratings advisory work, we will fly in and out.”

African Experience

Rothschild was recently the sole financial adviser to OCP Group ofMorocco on its debut bond. It has also advised Vodacom Group Ltd. on its 7 billion rand ($630 million) acquisition of Internet provider Neotel (Pty) Ltd. in South Africa and worked with the government of Ivory Coast on its inaugural $750 million Eurobond issue.
“I think you will find that there are many more bonds coming,” Kingston said. “There is an appetite.”
Rothschild said on Sept. 30 it had hired Trevor Manuel, who was South Africa’s finance minister for 13 years, as a non-executive senior adviser globally and a non-executive deputy chairman in South Africa, to help the firm meet client needs and identify opportunities across the continent.
To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net
To contact the editors responsible for this story: Dale Crofts atdcrofts@bloomberg.net John Viljoen, Cindy Roberts


MTN Group: The Emerging Market Rally Is Just Getting Started

Mar. 28, 2014 11:32 AM ET  |  About: MTNOY, Includes: AXTE, EEM, EMES, EZA, IST, IXP, TSLA

As we reach the end of the first quarter, Tesla Motors (TSLA) is leading the pack in the Best Stocks of 2014 contest with a massive 48% gain, followed by Emerge Energy Services LP (EMES) at 27%. Not too shabby given that the S&P 500 is barely positive on the year.
My pick for 2014 - South African mobile phone giant MTN Group(OTCPK:MTNOY) is off to a slower start, down about 2%. But with nine months left in 2014, I expect MTNOY stock to make a serious run for the top spot. And in fact, in the month of March, it has been the second-best-performing stock in the contest after EMES.
This year has been a rough one for emerging markets. First, there was the "mini-crisis" in the Argentine peso and waves of protests sweeping Venezuela. Then, there was the Ukraine political crisis that resulted in Russia effectively stealing the Crimean peninsula, and fears that China was about to have a "Lehman moment" that would see its capital markets collapse.
And finally, in the most bizarre of the lot, there is the corruption scandal engulfing Turkish Prime Minister Recep Tayyip Erdogan, in which Erdogan responded to his attackers by threatening to "eradicate" Twitter (TWTR), Facebook (FB) and YouTube (GOOG).
MTNOY's home country wasn't immune either. South Africa is in the midst of an election season that has seen President Zuma raked over the coals for using excessive public funds to upgrade his personal residence. The African National Congress is facing its most difficult election in the post-Apartheid era.
Yet an interesting thing happened. While the news stories have gone from bad to worse, most emerging markets have been quietly enjoying a rally since early February. The iShares MSCI Emerging Markets ETF (EEM) is up about 7%, and the iShares MSCI South Africa ETF (EZA) is up fully 17%.
So, what gives? Did the problems plaguing emerging markets - unsustainable current account deficits, unstable governments, weak domestic demand, etc. - spontaneously resolve themselves?
Not exactly. A more reasonable explanation is that the selling simply exhausted itself and that the bad news has already been priced in. Fund outflows from emerging markets are at their highest levels since the 2008 crisis.
As an asset class, emerging markets are cheap and under-owned and, for the most part, still completely despised by the investing public - making them a virtual textbook example of the perfect contrarian investment opportunity.
I believe that emerging markets are the single best asset class for the remainder of 2014. And as a leading mobile carrier in Africa - one of the fastest-growing regions in the world - MTN Group is in excellent position to ride that wave.
Let's review the bullish arguments for MTNOY:
  • It's the dominant mobile provider in the last great frontier market: Africa.
  • It provides a service that is essential to the lives of the new African middle classes.
  • Its markets are far from saturated, and it has virtually unlimited growth potential due to the inevitable shift to smartphones and higher-margin data plans; only about a third of MTN's subscribers currently use data.
  • It's very reasonably priced and pays a high and growing dividend; MTNOY stock has a dividend yield of 4.8%.
  • MTNOY stock trades at a reasonable price/earnings ratio of 14.
If you haven't picked up MTNOY stock yet, it's not too late. Though it has rallied off its recent lows, I believe we are still in the early stages of a multi-year rally in emerging market stocks.
Disclaimer: This site is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results.

Editor's notes: With a big 2015 looming as it enters non-mobile markets, CEVA is priced for gains. Tech fund manager Edward Schneider sees a potential double over the next 18 months.
Based in Mountain View, CA with R&D in Israel, CEVA (CEVA) designs/licenses digital signal processor (DSP) cores and platforms primarily to the mobile industry. DSPs mathematically modify and improve signal quality, including the conversion of analog signals to digital, and vice-versa. CEVA mainly serves the mobile phone baseband market, but is increasing its footprint in wireless infrastructure (M2M), audio, imaging, and automotive.
CEVA is the #1 licensor of DSP cores and platforms, three times larger than its closest peer. 5B CEVA-powered devices have been shipped to date, including 900M handsets in 2013. CEVA has Intel (INTC), Broadcom (BRCM), Samsung (OTC:SSNLF), Infineon (OTCQX:IFNNY), and other major semiconductor companies as licensees, with the notable exception of Qualcomm (QCOM) and MediaTek (2454.TW) for now. Several years ago, then market-leader, Texas Instruments (TXN), closed its external DSP business, creating an opening for CEVA. Since then, DSP requirements have become increasingly onerous and expensive for semiconductor manufacturers to maintain, leading most of them to outsource their DSP chip design to CEVA.
CEVA has a highly profitable and scalable business model based on royalties on every unit shipped (either fixed at $0.03 per unit on average or ~1% of chip price), and upfront license fees and support. Royalties accounted for 54% of 2013 revenues, and licensing 46%. The beauty of CEVA's ~90% GM business model is that incremental gross-margin revenue from royalties falls to the bottom line.
CEVA's high-growth trend was interrupted in 2012-2013 by 1) declines in cheap 2G mobile phone sales where CEVA had dominant market share, 2) related declines in 2G mobile royalties to $0.01 - $0.02 per unit, 3) Nokia (NOK) business decline whose mobile phones used CEVA DSP cores, and 4) the delayed launch of low-cost smart phones. In the second half of 2013, however, sub-$100 3G smart phones were introduced in China for as low as $30, which bodes well for 2014. Baseband growth in low-cost Chinese smartphones (e.g. Samsung's Galaxy models selling for $35) should be CEVA's largest growth driver in 2014. A second growth driver is the 4G LTE market which only has 2% penetration today. Samsung and Intel are now shipping multi-mode smartphones powered by CEVA. Also, the recent MediaTek acquisition of Via, a CEVA client, may help CEVA break into MediaTek for LTE chips.
CEVA, $M
2010
2011
2012
2013
2014e§
2015e§
Licensing Revenues
18.4
20.2
19.1
22.4
25.0
26.0
Royalty Revenues
22.9
36.4
32.0
26.5
28.0
40.0
Total Revenues
44.9
60.2
53.7
48.9
53.0
66.0
Gross Profit
41.2
56.7
49.7
43.7
48.0
61.5
as % of revenues
91.7%
94.1%
92.6%
89.4%
90.6%
93.2%
EBITDA
10.4
19.1
12.9
5.4
14.0
22.0
as % of revenues
23.2%
31.7%
24.0%
11.1%
25.9%
33.3%
Non-GAAP EPS
0.56
0.97
0.79
0.54
0.84
1.10
GAAP EPS
0.51
0.77
0.59
0.30
0.60
0.86
* includes other revenues of $3.7M in 2010, $3.6M in 2011, & $2.6M in 2012; §Consensus: 2014 revs: $51.5M, 2014 GAAP EPS: 0.60, 2014 EBITDA: $14M, 2015 revs: $58M, 2015 EBITDA: $19M, 2015 GAAP EPS: 0.76
A long-awaited growth driver for CEVA has been penetrating non-mobile sectors, which diversifies its revenue base into some secular growth areas. The only problem is that these niches pale in size to the mobile baseband business. Finally, CEVA appears to be making some real progress in this area by announcing a larger-than-expected number of broad-based licensing wins in Q4 2013. Eight of the eleven 2013 Q4 licensing deals were non-baseband in fast-growing markets, and apart from two Bluetooth deals, had premium royalty potential. Also, the average dollar value of the non-baseband deals was in line with the baseband deals.
CEVA's 2013 Q4 could be a turning point. Total revenues of $14M rose 40% sequentially, and 8% y-o-y. Royalties advanced 11% sequentially from a Q3 trough to $6.7M, after a long downtrend that started in 2012 Q1. Licensing revenues in Q4 were a record $7.3M, up 84% sequentially and 52% y-o-y. Licensing revenue momentum continued into the month of January. Licensing revenue eventually turns into royalty income. Thus, medium-term visibility to rebounding revenues and profits improved dramatically.
CEVA is by no means out of the woods. Management guided down consensus estimates for a seasonally soft 2014 Q1. CEVA's 2013 Q4 handset exposure was 60% feature phones and 40% smartphones. While feature phone exposure decreased from over 70% at the beginning of the year, CEVA is still sensitive in the short term to feature phone market erosion, as well as smartphone launch delays. But by the time this short-term volatility issues disappear, CEVA stock should be much higher than today. Not surprisingly, CEVA shares jumped 10% in the first two trading days after CEVA reported before the open on January 30, and have roughly maintained those gains since then. This is the first-leg in what could be a larger rebound after the Street gets on board.
The tipping point is still a ways off, but visibility is improving. Aided by non-mobile phone baseband applications and low-cost smartphones, the number of CEVA-powered devices will move from 3B in 2012 to 7B in 2016 according to management. 4B incremental devices x $0.03 average royalty rate = $120M in revenues that drop to the bottom line. This would have a major impact on CEVA with just $49M in 2013 revenues.
How much upside does CEVA shares have from here? I see 2015 as a break-out year for CEVA, well above the consensus forecasts. I am less certain about 2014 as there are still some handset transition issues that can weigh on CEVA's 2014 results. Viewed another way, CEVA stock was trading above $30 in January 2012 when revenues and EPS peaked at $60M and 0.77, respectively. I am forecasting a strong rebound in 2015, with revenues of $66M and EPS of $0.86. CEVA shares are at $17.22 today, they would double over the next 18 months using the same multiples and growth rates that the market applied to CEVA two years ago.
The risk that management can control is execution. CEVA needs to continue licensing momentum to build a diversified yet robust base for sustainable long-term growth. The uncontrollable variable is the mobile phone market - will Samsung (CEVA's customer) continue to gain market share at the expense of Apple (AAPL)? In any case, if management fails or the market disappoints, CEVA will be penalized by its stock-based compensation program that takes a big chunk out of years with weak profits like 2013. In other words, CEVA's prospects today have to be that much stronger to compensate for an aggressive ESOP relative to its current small net profit base.
CompanyTicker
Price
2/19/14
MktVal
EV/LTM
Revs
EV/LTM
EBITDA
Price/
LTM EPS
GM
EBITDAMargin
EBITDA % chg '14
ARMARMH$46.07$22.2B17.8x45.7x127.9x94.5%39.6%+51%
ImmersionIMMR$11.36
$325M
5.9x37.0x82.6x94.9%15.9%+78%
ImaginationIMG.L£1.83$808M3.0x28.3xLoss87.2%10.8%+70%
Peer Avg.8.9x37.0x105.3x92.2%22.1%+66%
CEVACEVA$17.22$379M5.0x45.0x57.4x89.4%11.1%+158%
Currently priced at $17.22, CEVA shares have a market cap of $379M, and after deducting net cash and equivalents of $134M, have an enterprise value of $244M. CEVA shares rose 13% year to date, after declining 3% in 2013 and dropping 48% in 2012. CEVA shares are fully valued on an absolute basis using 2013 figures, trading at EV/revenues of 5.0x, EV/EBITDA of 45.0x, and a P/E of 57.4x. Based on 2015 figures, the numbers are more attractive with EV/revenues of 3.7x, EV/EBITDA of 11.1X, and a P/E of 20.0x. CEVA is attractively valued versus its direct peers. The premium valuations of CEVA and its few public peers are merited in light of their well protected, scalable and profitable royalty/licensing business model. ARM Holdings and Immersion are the most direct comparisons, while Imagination Technologies had major operational shortfalls in 2013 and has a more levered balance sheet.
CEVA's unique, protected and profitable business model was coveted by Wall Street in 2010-2011, and will be attracting similar interest again as positive trends initiated in Q4 2013 become more prevalent. What is not in the price today, are watershed results starting next year. The Street will need further confirmations of positive 2013 trends that became more pronounced in Q4. Some investors are looking at current subpar royalty revenues (which actually reflect customer sales from the previous quarter). But by the time that analysts tweak their models/price targets and royalties rise, CEVA shares should be much higher. While it is not a lock, recent positive operating trends should continue as 1) positive licensing momentum continues into the current quarter, and 2) today's licensing revenue strength turns into future royalty streams. Thus, CEVA has an attractive risk-reward tradeoff.
By Edward Schneider
Source:http://seekingalpha.com/article/2038623-ceva-a-good-time-to-buy


Bitcoin Spawns China Virtual IPOs as U.S. Scrutiny Grows

By Lulu Yilun Chen - Aug 21, 2013
The Bitcoin craze is reaching new heights in China.
Sun Minjie is a 28-year-old Internet worker who lives in Beijing. Eager to profit from growing demand for the digital currency, Sun has invested more than $3,000 in a company called 796 Xchange Ltd., an online exchange for trading stocks and other financial instruments related to Bitcoin, where initial public offerings are also being held.
He’s part of a small but growing group of investors in China who have put the country into contention with the U.S. as the biggest downloader of the virtual money that’s being used to buy a growing range of goods and services online. While intensified scrutiny by U.S. regulators casts doubt on the currency’s future there, China’s Bitcoin industry is expanding.
“What’s worrisome is that a lot of people could be just treating it as a speculative investment,” said Peter Pak, head of trading of BOCI Securities Ltd. in Hong Kong. “In China, the stock market, property and bond market are all not so good, so people get really excited when they hear of a new investment that generates high returns.”
Sun’s outlay of about 28 Bitcoins -- or $3,108 -- for more than 400 shares in 796 Xchange has returned about 46 percent since the stock’s Aug. 1 debut on the company’s own website. The benchmark Shanghai Composite Index (SHCOMP) has only gained about 2 percent during the same period.

‘Expensive to Crack’

Bitcoin is similar to other currencies -- say, the Mexican peso -- except it’s not controlled by any government and the total number is capped at about 21 million coins. Computer users can “mine” them by solving mathematical puzzles -- uncovering the hidden series of letters and numbers that matches up with security keys specified by the computer programmers who invented Bitcoin in 2009. As more are mined, the puzzles get harder, and therefore more expensive to crack.
Sun turned to shares of Bitcoin companies after initially trying to mine the currency crunching algorithms on souped-up PCs at his office and home. He gave up after a month, concluding that his computers weren’t up to the task.
“Simple desktops can no longer dig them up,” he said.
There are about 11.5 million Bitcoins in circulation, according to Blockchain.info, which tracks the virtual currency. At today’s price of about $121, there’s still $1.15 billion to unearth. The inherent scarcity of Bitcoin that was intended to help secure its value has also attracted early investors -- Cameron and Tyler Winklevoss, the twins known for their claim to have co-founded Facebook Inc. (FB), own about 1 percent of the currency in issue.

Bigger Drills

Prices have been volatile, with the value of one Bitcoin varying from $84 to $266 in the span of one week in April, according to Tokyo-basedMt. Gox, the largest exchange that allows Bitcoin to be traded for dollars, euros and other currencies.
More advanced miners use specially designed gadgets that cost as much as 86 Bitcoins, about $10,407, in order to mine the digital currency.
Labcoin, managed by Hong Kong-based ITec-Pro Ltd., also began trading its shares this month in a virtual market. The seller of virtual-mining equipment had a market value of 20,000 Bitcoins, or about $2.4 million. Another company that sold shares is Myminer, which operates “mining farms” in China, where it says the low cost of power to run computers gives it an edge. BTC Garden, a Shenzhen-based Bitcoin miner, withdrew its IPO this month, citing a dispute with an investor.
Hong Kong-incorporated 796 Xchange offers an online stock market for Bitcoin companies, as well as futures, financing and IPO services, all priced in Bitcoins, according to its website.

Regulatory Probe

BTCChina.com, China’s most popular Bitcoin exchange, lets traders to use the payment systems of more established companies. That includesTencent Holdings Ltd. (700), the nation’s biggest Internet company, and Alipay, an affiliate of Alibaba Group Holding Ltd., the No. 1 e-commerce company. Other Bitcoin trading platforms popular in China include FXBTC.com and Btctrade.com.
China briefly overtook the U.S. in monthly downloads of Bitcoins in May, and now ranks second, according to SourceForge.
In the U.S., the Securities and Exchange Commission sued a Texas man over claims he operated a Bitcoin Ponzi scheme. New York’s Department of Financial Services this month sent subpoenas to 22 digital-currency companies to determine whether new regulations should be adopted, according to a person familiar with the matter.
The lack of regulation, which has drawn scrutiny from U.S. regulators, is why Bitcoins are taking off in China, where the government controls the flow of money overseas and keeps a tight rein on what it views as undesirable behavior.

‘Bitcoin is Freedom’

“The advantage for Chinese users to use Bitcoin is freedom, people can do something without any official authority,” said Patrick Lin, system administrator of Erights.net and owner of about 1,500 Bitcoins. Lin said he’s sticking to the currency itself, rather than IPOs, in part because of weak regulation. “The Bitcoin world is just like the Wild West -- no law, but opportunity and risk,” he said.
The China Securities Regulatory Commission didn’t respond to a faxed query on whether it’s looking at new rules regarding Bitcoin. So long as it remains small, the industry may continue to fly below the radar screen of a Chinese government more preoccupied with a faltering economy and social stability.
“If the circulation of Bitcoins is still confined to a small circle of people, it won’t be something on the Chinese authority’s priority list,” said Edward Au, co-head of Deloitte China’s public-offering group. “They already have too much to cope with.”
To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

China Unicom's 3G Growth Delivers Big Time As Budget Smartphones Flourish

China Unicom (CHU) announced a solid set of results for the first half of 2013, as 3G growth continued to impress amid robust sales of low-cost smartphones, which helped mitigate subsidy concerns as well. The second largest Chinese wireless carrier benefited tremendously from its 100 million plus 3G subscriber base as strong data demand boosted overall revenues. Half yearly revenues grew by 18.6% from last year, bolstered by a 52.1% increase in the operator’s 3G service revenues over the same period.
China Unicom’s 3G business continues to be its mainstay as 3G subscribers increase every month while a low 3G penetration rate of 38% offers large room for growth. However, considering the capital intensive nature of the telecommunication industry and the fast changing technological landscape for mobile telephony, China Unicom will have to carefully devise its 4G strategy in light of the steps being taken by its mighty competitor -- China Mobile (CHL) (see China Mobile Readies For A Massive 4G Launch). Heavy CapEx for 3G has so far thwarted China Unicom’s efforts in generating free cash flows. However, the company managed to generate free cash flows in H1 2013 by scaling back its CapEx spend, in preparation for a potential 4G LTE launch in the coming months.
In our previous analysis (see China Unicom’s Earnings: 3G Push Driven By Data Demand And Low Cost Smartphones), we had raised concern over China Unicom’s declining 3G ARPU. However, as per the latest interim results, the 3G ARPU seems to have stabilized at RMB 77.6, which is a good sign for the long-term growth of the company. Another positive development is that the impact of handset subsidies has largely been mitigated as low cost smartphones now represent a bulk of Chinese smartphones sales.
We reiterate our price estimate of $18 for China Unicom’s stock. Buoyed by strong results, the stock price rose more than 6% post earnings on August 8th.
3G Revenue Growth Is Here To Stay
China Unicom’s 3G business represents more than 50% of the mobile division’s revenues. More importantly, China Unicom’s 3G ARPU is more than twice that of 2G. Therefore, increase in 3G subscribers with simultaneous higher 3G penetration translates into higher revenue and earnings growth for China Unicom.
China Unicom’s strong half yearly performance can be attributed to the growth of its 3G subscribers from last year. For the six months ending June 2013, China Unicom added 24 million 3G subscribers, a 40% improvement over the same period last year. As a result, the company’s 3G service revenue grew 52.1% to RMB 40.91 billion in the first half of 2013. Consequently, overall revenues grew 18.6% to RMB 144.31 billion. Going forward, we expect the 3G business to continue its strong performance as China Unicom adds 3G subscribers at a brisk pace of 4 million per month.
Focus On Free Cash Flows
China Unicom has invested huge sums on its HSPA+ 3G network. As a consequence, it has not been able to generate positive free cash flow (operating cash flow – CapEx) in the last couple of years. However, the recent results show a change in this trend.
In the first half of 2013, China Unicom generated a positive free cash flow of RMB 19.6 billion as CapEx declined by almost 50% from the same period last year. The decline in CapEx is as per the company’s guidance as it seeks to conserve cash for its 4G foray. The onset of 4G would require large capital investments from China Unicom. Thus, the upcoming transition in the Chinese telecommunication space is likely to curtail free cash flow generation for China Unicom.
It will be interesting to see how China Unicom adapts to 4G as licenses are expected to be issued later this year. China Mobile, the largest of the three Chinese telcos, has been the front-runner in 4G as it plans to build more than 200,000 4G base stations in 2013. If 4G services were to trickle down quickly to China’s mobile subscribers, China Mobile will certainly get an edge considering its large scale preparation for a 4G launch.
Low Cost Smartphones Have a Neutralizing Effect
In the last couple of years, low cost smartphones have become increasingly popular in the Chinese market. This has impacted China Unicom in two ways. On one hand, it has led to lower 3G ARPU while on the other it has helped in controlling the subsidy impact, which has enabled the company to arrest the fall in margins. China Unicom’s 3G ARPU has declined from RMB 91 in H1 2012 to RMB 77.6 in H1 2013. But the fall hasn’t impacted China Unicom much as the company has expanded its 3G subscriber base rapidly. Moreover, the decline in the 3G ARPU seems to have stabilized at the current level and we expect it to rise over the long term, considering the explosive demand for data consumption.
On the margins front, the onset of 3G proved to be tough for China Unicom as the mobile division’s margins declined from about 45% in 2008 to around 21% in 2012, as per our analysis. Handsets subsidies on premium smartphones like the iPhone have been responsible for the large contraction in margins. However, low cost smartphones have helped China Unicom control the subsidy impact and the subsequent fall in margins.
Recent data confirms this trend. For the first half of 2013, 3G terminal subsidy cost as a percentage of 3G service revenue declined to 10.3% from 13.1% in the previous year. EBITDA margins for the mobile division have also stabilized at around 21% in the last 2 years. Therefore, on a broader perspective, low cost smartphones have certainly helped China Unicom emerge as a healthier company.
Disclosure: No positions.



The Most Undervalued Emerging Market In The World

By David Sterman
Published 07/09/2013 - 14:30
Forget the old adage "When the U.S. sneezes, the world catches a cold."
Friday's solid employment report shows the U.S. economy -- the world's largest by a considerable margin -- to be faring reasonably well.
The new adage: "When China sneezes, the world catches a cold."
China's economy, which recently overtook Japan's as the world's second largest, has been slowing throughout the first half of 2013. That slowdown is wreaking havoc on many emerging economies.#-ad_banner-#
The sharp pullback in places like Brazil, Australia, Turkey and elsewhere should be seen as opening for investors that have been awaiting better valuations in these markets. Indeed, the forward earnings multiple for many of these countries' stock markets has been drifting ever lower, creating a valuation gap with U.S. stock markets that, in some instances, approaches 40%.
Still, investors need to know that these markets can surely fall lower, so it's crucial to take the long view with investments in Latin America, Asia, Eastern Europe and Africa. If the Chinese economy weakens further, its huge role in global trade means that some emerging-market economies might actually slip into a recession in coming quarters.
It may be too soon to draw such a dire conclusion, and some these markets may have already hit bottom. However, the International Monetary Fund (IMF) this week pared back its growth forecast for this year to 3.1%, down from the 3.3% it projected in April. This underscores the need to monitor the global economy closely if you plan to wade into these markets.

A Lone Bright Spot?

Yet throughout the downturn in emerging markets, one country appears poised to feel only a minor impact from a slowing China. It's home to 250 million people (the fourth-largest population in the world), has been posting robust growth rates thanks to a rapidly expanding middle class, and now has sufficient domestic consumption to insulate itself from the global trading headwinds that are emerging.
That country: Indonesia, which has been moving up in global rankings and now has the 17th-largest economy in the world, just ahead of Turkey and right behind South Korea, according to the IMF.
This economy is growing at such a robust pace that one can cite a variety of impressive statistics. For example, auto sales rose 17.8% in the first quarter of this year from the same period last year. Here's another: Foreign direct investment surged 27% in the first quarter to around $7 billion. That's the fastest growth rate of any of the world's 50 largest economies. Notably, much of that recent foreign direct investment is targeted at the Indonesian consumer -- not at the traditional mining industries that were once the backbone of the economy.
Indonesia's economy has grown in excess of 6% for each of the past three years, according to the IMF. Can that growth rate last? Probably not. The troubles in China will likely shave a percentage point or two off of Indonesia's growth rate. The IMF's latest forecast suggests 6.3% GDP growth this year and 6.4% growth in 2014. Look for that forecast to move closer to 5% as the year progresses
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Indonesia's biggest headwind isn't China -- it's corruption and red tape. The country is "growing by 6% but should be growing by 10%," a U.S. Chamber of Commerce official recently told [1] The New York Times.
The good news: The Indonesian government is aggressively revamping the process for new business applications, and anti-corruption efforts, which were launched five years ago, are starting to finally take root in the form of heavy fines and jail time for bribery. (As theHuffington Post notes [2], however, more work still needs to be done.)
Time To Invest?Indonesian stocks have surged more than 300% since the end of the 2008 economic crisis, and investors waiting for an entry point have been frustrated as the Indonesia market moved ever higher. In recent weeks, that opening may have arrived.
There are three exchange-traded funds (ETFs) that focus on Indonesia, all of which have been sucked into the emerging-markets downdraft of the past few weeks:
  • iShares MSCI Indonesia Investable Market Index (NYSE: EIDO [3]). This fund has $475 million in assets and a 0.61% expense ratio.
  • Market Vectors Indonesia Index ETF (NYSE: IDX [4]), which has $325 million in assets and a 0.59% expense ratio.
  • Market Vectors Indonesia Small Cap ETF (NYSE: IDXJ [5]), which has just $7 million in assets and a 0.61% expense ratio. 
Risks to Consider: Emerging markets remain quite volatile, and though they appear to have found a floor in recent sessions, they could easily stumble further before an eventual rebound.
Action to Take --> Investors who were wise enough to invest in Japan in the 1960s, South Korea in the 1980s or China in the past decade scored huge gains for one basic reason. Those economies put the foundation in place to build a thriving middle class, which established a self-sustaining pattern of rising domestic consumption. Indonesia appears to be working off of the same playbook. It's unclear where Indonesian stocks will trade three or six months from now, but long-term investors could reap significant gains.

-- David Sterman
http://www.streetauthority.com/international-investing/most-undervalued-emerging-market-world-475780


Peru's Credicorp Continues To Perform Strongly And Offers Some Upside For Investors


  • January 11, 2013, 12:54 P.M. ET

JPMorgan Likes Latin American Beverage Stocks

By Ben Levisohn

JPMorgan released a note on Latin American staples on Dec. 10– and the company is particularly bullish on beverage stocks.
Lynn Bo Bo/European Pressphoto Agency
Beverage stocks should continue growing earnings at a double-digit clip, analysts Alan Alanis and Sambuddha Ray say, and their high valuations can be sustained if the good news continues.
They’re particularly bullish on Companhia de Bebidas Das Americas (ABV) , known as AMBEV. Not only do they see earnings growing, they also believe there’s a good chance the company will raise its dividend. The analysts set a 2013 price target of 97 reais on the stock, up 11% from today’s 87.28, and rate the stock and overweight.
Compania Cervecerias Unidas S.A. (CCU), meanwhile, should benefit from easy comparisons–so operating performance should “improve significantly in 2013.” JPMorgan set a 2013 price target of $36 on the stock, up 14K% from today’s $31.58.
Fomento Económico Mexican (FMX), or FEMSA, will benefit from its exposure to Mexican retailer Oxx0, which is trading at a discount to other Mexican–despite having stronger growth and better margins.  JPMorgan set a 2013 price target of $110 on the stock, up 3.9% from today’s $105.86.
Coca-Cola Femsa (KOF), a Coca-Cola Co. (KO) bottler, concerns JPMorgan because of its extreme valuation–it currently trades at a PE multiple of 24.6, according to Morningtsar.  The analysts set a 2013 price target of $158 on the stock, up 1.4% from today’s $155.83.




Hedge Funds Are Buying These 4 BRIC Stocks

January 8, 2013  |  includes: CYOU, LONG, SINA, SPRD


By Kapitall :Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Interested in emerging markets? If so, here are some ideas to get you started.
We ran a screen on US-traded stocks from the BRIC countries (Brazil, Russia, India and China) for those seeing the most significant net institutional purchases over the current quarter. Institutional investors, such as hedge fund managers and mutual fund managers, are generally considered "smart money" investors because of their experience and access to sophisticated research.
We screened for those with bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these stocks will outperform like hedge funds expect? Use this list as a starting point for your own analysis.

1. Changyou.com Limited (CYOU): Develops and operates online games in the People's Republic of China. Market cap at $1.54B, most recent closing price at $29.12. Net institutional purchases in the current quarter at 877.6K shares, which represents about 8.87% of the company's float of 9.89M shares. The top 2 holders of the stock are Wellington Management, and FMR, LLC.
2. eLong, Inc. (LONG): Operates as an online travel service provider in the People's Republic of China. Market cap at $526.81M, most recent closing price at $15.35. Net institutional purchases in the current quarter at 186.9K shares, which represents about 5.34% of the company's float of 3.50M shares. The top 2 holders of the stock are Capital World Investors, and Inegre Advisors.
3. Sina Corp. (SINA): Provides online media and mobile value-added services (MVAS) in the People's Republic of China. Market cap at $3.52B, most recent closing price at $52.76. Net institutional purchases in the current quarter at 4.2M shares, which represents about 6.68% of the company's float of 62.86M shares. The top 2 holders of the stock are FIl Ltd., and Capital Research Global Advisors.
4. Spreadtrum Communications Inc. (SPRD): Operates as a fabless semiconductor company that designs, develops, and markets baseband processor and RF transceiver solutions for wireless communications and mobile television markets. Market cap at $788.1M, most recent closing price at $17.17. Net institutional purchases in the current quarter at 5.5M shares, which represents about 16.67% of the company's float of 33.00M shares. The top 2 holders of the stock are FMR, LLC, and Waddell & Reed Financial Inc.
*Institutional data sourced from Fidelity, all other data sourced from Finviz.





Are These 4 Small Cap Growth Stocks Tomorrow's Industry Leaders?

By David Sterman
Published 12/27/2012 - 08:30
It's hard to remember, but today's leading large-cap stocks were once just fast-growing small businesses. Years of double-digit annual sales growth turned these acorns into mighty oak trees.
And if you glance across the 600 stocks comprising the S&P's SmallCap 600 Index, then you'll come across tomorrow's stars as well. Several dozen firms are in the midst of a long-term growth spurt that will likely have them characterized as mid-cap stocks before long. And well down the road, these stocks could be solid citizens in the S&P 500 Large Cap Index. Here are four to keep your eye on...
1. 3D Systems
[1]3D Systems (NYSE: DDD [2]), along with Stratasys (Nasdaq: SSYS [3]), was one of the early pioneers of "rapid prototyping," which allows designers to make a three-dimensional model of virtually any small item. NASA even used a machine to create spare parts in mid-flight if necessary. For many years, this industry was more about hype than reality: 3D Systems' sales hit $126 million in 2004 and by 2009, had actually shrank to $113 million. Since then, you can see this company hitting its stride as sales rose at least 40% in 2010 and 2011. Thanks to acquisitions that augment organic growth, sales likely rose more than 50% this year (to around $350 million) and could approach $450 million by next year.There's a counterintuitive way to trade a stock like this. You want to buy high-growth stocks when they hit a temporary rough patch. And this stock has risen from $15 to $50 in the past year, thanks to scorching growth, but we've repeatedly seen fast-moving stocks like this take a huge hit when a bad quarter arrives (Netflix (Nasdaq: NFLX [4]) and Chipotle Mexican Grill (NYSE: CMG [5]) being two recent notable examples.) 3D Systems' long-term growth prospects are so robust, you need to track this stock and be ready to pounce when the inevitable quarterly stumble happens.

2. Akorn Inc.
[6] Akorn Inc. (Nasdaq: AKRX [7]) is a generic drug manufacturer capitalizing on the broad range of patent-protected pharmaceuticals that are now going off patent. Akorn, which focuses on ophthalmology and gels, saw its sales shoot up from $76 million in 2009 to a projected $250 million in 2012. Thanks to a robust pipeline, analysts see sales rising to $330 million in 2013 and more than $400 million by 2014. Part of this growth is coming from an aggressive expansion in the company's sales force.Akorn hopes to grow faster than the rest of the industry by establishing a low-cost beach head. The company's manufacturing plant in India will be capable of producing 10 times more output than its U.S. facility -- and at lower cost. It's already a reasonably profitable business, with gross margins exceeding 55%. That should enable earnings per share (EPS) to power higher, from a projected 50 cents a share in 2012, to more than 80 cents a share by 2014, and perhaps $1 a share by 2015, once the plant in India is working closer to capacity.

3. Carrizo Oil & Gas
[8]Carrizo Oil & Gas (Nasdaq: CRZO [9]) has been rapidly expanding its drilling program across a number of the leading U.S. shale fields, which is fueling explosive top-line growth. Sales are on track to nearly double in 2012 (to about $400 million), and could exceed $750 million by 2014.Per-share profits are rising at a commensurate clip, from a projected $1 in 2011 to more than $3 by 2013. So why has this stock fallen from $70 in 2008 to $40 in the spring of 2011 to a recent $22? Because investors are less than impressed by the profit trajectory and instead want to see Carrizo generate robust free cash flow. The company has plowed every cent back into its drilling expansion plans and has never generated positive free cash flow in its history. Management says Carrizo will start to generate positive cash flow later in 2013, and if it can show spending discipline in 2014 and beyond, then the cash flow should rise sharply, finally giving this stock a long-awaited lift.
  

4. Financial Engines
[10]As corporate pension plans slowly disappear, consumers are increasingly tasked with managing their own retirement plans. It's surely a daunting task for anyone that lacks a lot of exposure to consumer finance issues.Financial Engines (Nasdaq: FNGN [11]) was launched in 1996 to help create a series of user-friendly retirement plan websites, and now has more than $500 billion in assets in tandem with 500 different financial institutions.As more firms have signed on to help their clients use Financial Engines' software and asset-management program, growth has been remarkably steady. Sales have risen roughly 20% to 25% annually since 2005 and are on track to grow at least 20% in 2012, 2013 and again in 2014, by which time they should approach $275 million.
And this kind of sales growth over a largely fixed cost base is fueling profit gains. Goldman Sachs estimates that EBITDA margins rose two percentage points in 2012 to 23.7% and could approach 25% in 2013. And robust growth can be sustained for quite some time to come, Goldman's analysts say. "Financial Engines is on the verge of broadening its offering to include IRA plans, a market significantly larger than 401Ks," they note, adding that the company should have an easy time simply working with existing partners, rather than trying to market the new offerings directly to consumers.
Risks to Consider: Strong growth begets rising expectations, so these stocks would be punished if there are any growth stumbles along the way.
Action to Take --> When identifying companies capable of sustained growth, you need to focus on those firms that are able to expand sales simply through an expansion of their current efforts. Of this group, only 3D Systems is pursuing acquisitions, but in this instance, these deals only help to expand a robust pipeline of organic growth opportunities.

-- David Sterman







Connections: Finding opportunity in the global economy


Five Countries To Watch

By Francis Njubi Nesbitt
In May 2000, The Economist magazine declared that Africa was "the hopeless continent." Eleven years later, in 2011, it referred to Africa as "the hopeful continent." And on October 20, 2012, the magazine stated: "In recent years investors have been piling into Lagos and Nairobi as if they were Frankfurt and Tokyo of old."
Clearly, gloomy skepticism has given way to glowing optimism about Africa, and for good reason—over the past 10 years, many of the economies within Africa are outpacing economies anywhere else in the world. In fact, according to the International Monetary Fund's (IMF) World Economic Outlook released in October 2012, 11 of the world's 20 fastest-growing economies are in Africa, and this booming economic growth has helped create the fastest-growing middle class in the world.
Of course, the major trends driving this growth—changing policy environments, a growing middle class that expects equitable social and economic policies, high commodity prices, robust domestic demand, and rapid mass urbanization—have not affected all countries on the continent equally. Here's a quick look at five economies that have especially benefited from recent developments, and those that pose some of the best potential for the future.

1. SOUTH AFRICA: THE CONTINENT'S LARGEST ECONOMY

Africa's southernmost country has a mature economy with strong industrial, financial, and transportation sectors. With GDP estimated at $408 billion and per capita income estimated at $11,000 for 2012, the country sits firmly in the World Bank's Upper-Middle-Income category, along with Brazil and China. In 2010, South Africa joined the BRICS (Brazil, Russia, India, China and South Africa), an association of top emerging economies distinguished by their fast growth and burgeoning influence in regional and global matters.
Global Economic Outlook Bright for African CountriesDespite its developed infrastructure and abundant natural resources, South Africa does face challenges in the areas of governance and inequality. Protests, strikes, and instability have hindered foreign investment in the country. And compared to Africa's Middle-Income Economies—or MICs, as defined by the World Bank—South Africa's 2.6% economic growth rate is sluggish. (This has partially been because closer ties to the global economy and substantial exposure to the Euro zone mean South Africa has been more affected by the global economic slowdown.)
That said, the country is a major regional powerhouse. It has large investments in neighboring countries. And South African companies—particularly its financial services, retail, fast food, supermarket, service station, and textile firms—are flooding the continent with consumer goods and services. This has given the country an outsize influence on the continent, and a firm stake in the success of economies across Africa.
2. NIGERIA: A WAKING GIANT
Nigeria, in West Africa, tops most lists of African countries to watch over the next decade. Traditionally known as "the sleeping giant of Africa," the country has a huge population of more than 167 million, over 50% of which lives in urban areas like Lagos and Kano. According to the state-run Nigeria National Petroleum Corporation (NNPC), Nigeria is Africa's largest oil producer, exporting 2.5 million barrels per day. Economically, it has registered a solid 7% growth rate for the last decade, and politically, with its second civilian transfer of power in less than a decade, the country has begun to consolidate its democratic reforms.
In many ways, Nigeria's current status resembles that of Brazil before political and social reforms turned around its economy in the 1990s. Nigeria may be able to replicate Brazil's success by adopting similar policies, including investing in infrastructure, reducing poverty and inequality, and reforming institutions.
According to an October 2012 report by Standard Chartered Research, Nigeria's challenge is to replicate its success in technology (mobile telephony) in the utilities, refining, and agricultural sectors. The report urges Nigeria to move away from the "system of patronage" that has held the country back for decades. It also calls for greater emphasis on diversification and long-term planning that will change Nigeria from an "allocation" to a "production" state. The report states that, "Oil and gas, even given Nigeria's vast resources, are not going to determine development in the future."
Nonetheless, there is a great deal of optimism surrounding Nigeria. The Economist even suggested recently that Nigeria's economy, messy as it still is, has the potential to overtake South Africa within a few years.

3. ANGOLA: A CHINA-FUELED SURGE

Angola is sub-Saharan Africa's third-largest economy after South Africa and Nigeria, with a GDP of $107 billion and per capita income of $8,200. Since the end of the civil war in 2002, Angola's economy has been growing much faster than the continent's two powerhouses, and the World Bank recently reclassified it as an Upper-Middle-Income economy. Unlike South Africa, however, Angola has a young economy that lacks diversification. And the country is still recovering from that 27-year-long civil war, which devastated its economy and people.
Angola is the continent's second largest exporter of oil. Its economy was expanding at a rate of 15% before the global recession of 2009. Despite the current contraction, its economy is still expected to expand by 6.8% this year thanks to the export of oil and diamonds, as well as uranium, iron ore, gold, and copper. (Most of Angola's oil goes to China; Angola is China's biggest trading partner on the continent.)
Since the end of the war, Angola's civilian government has instituted aggressive economic and social reforms that are beginning to bear fruit, and it claims to have reduced poverty from 68% to 39% over the last decade. It has also asserted an infrastructure development program to build thousands of miles of roads and railroads, and hundreds of bridges and reconstructed airports. Most of these infrastructure projects involve Chinese firms under an oil-for-infrastructure deal that some criticize as favoring China.

4. GHANA: AFRICA'S NEXT ECONOMIC STAR?

Another emerging African "lion" is West Africa's Ghana, which is still classified as a Lower-Middle-Income country by the World Bank. Its economy grew at 14.3% in 2011, making it one of the fastest-growing economies in the world (and tops on the African continent), though the World Bank expects its growth to slow to 7.5% for 2012.
Ghana's growth can largely be attributed to increased oil production, although diamond, iron ore, and cocoa exports also contributed to the bottom line. After decades of mismanagement, Ghana began to turn its economy around in the early 1990s, when it instituted wide-ranging economic reforms with the support of the IMF and World Bank. In 2007, oil was discovered, which led to faster economic growth. Today, Ghana has been a stable democracy since 1992, and is considered a model for prudent political and economic reform.

5. ETHIOPIA: PUBLIC SECTOR INVESTMENT

Ethiopia is an example of a non-resource-rich country with an economy that nonetheless grew at an average of 11% between 2004 and 2011. According to the World Bank, this is based on its government's public sector investments in agriculture, industrialization, and infrastructure. Government investments in hydropower have made Ethiopia a net exporter of electricity to neighboring countries such as South Sudan and Djibouti. And with a population of 85 million, Ethiopia is sub-Saharan Africa's second most populous country, after Nigeria.
With that population expected to reach 100 million by 2020, Ethiopia represents a huge market that is expected to drive economic integration in the region and growth for its neighbors. In addition, the country has been praised for making progress in all areas of the Millennium Development Goals (ending poverty, hunger, and disease). The Ethiopian government estimates that poverty declined from 38.7% in 2004 to 29.6% in 2011. As a result, Ethiopia has laid the foundations for sustainable growth and even emerging economy status.

A LOOK TO THE FUTURE

While these five economies represent some of the brightest spots on the continent, others are waiting in the wings, particularly those that are rich in resources. The World Bank notes that the combined benefits of a peace dividend and iron ore exports in Sierra Leone, for example, have led to a 25% growth rate over the course of 2012. Similarly, in Niger, uranium and oil exports have led to a 15% growth rate this year.
African Economy Grows According to the October 2012 edition of Africa's Pulse, a World Bank publication, at least 10 countries are expected to join the 21 in sub-Saharan Africa that the bank classifies as MICs. Among those predicted to be upwardly mobile are Kenya, Tanzania, and Rwanda, where the discovery and development of new reserves of oil, gas, and other minerals, is expected to accelerate growth.
Terra Lawson-Remer, a Fellow for Civil Society, Markets & Democracy at the Council for Foreign Relations in Washington, D.C., cautions not to paint Africa's growth story with "too broad a brush stroke." She notes that most of the countries that have registered rapid growth rates are resource-rich, and have benefited from high commodity prices in recent years.
Emira Woods, co-director of Foreign Policy in Focus at the Institute for Policy Studies, also cautions against focusing too much on growth rather than equity. She notes that, "We are seeing growing inequality both within and among countries." This inequality is compounded by the rising expectation among the poor for wealth-sharing that, if not met, could lead to political instability.
"This is the reason we have protests in Nigeria, Tahrir Square [in Egypt], Sudan, and Tunisia," Woods said. "The current labor uprising in South Africa also shows evidence of the problem of expectations [and] of inequality."
Nevertheless, there are strong signs for the continent as a whole. Lawson-Remer suggests the downturn in Europe's economic fortunes means that "capital looking for investments has to go elsewhere." Thanks to Africa's growing economies, high rate of return, and abundance of natural and human resources, Western conglomerates like IBM, Nokia, and Nestlé are investing heavily. And China's interest shows no sign of waning. The country's trade with Africa is expected to hit $220 billion in 2012—a 25% growth rate annually—and its former vice-minister of commerce, Wei Jianguo, told China Daily that Africa will surpass the U.S. and the E.U. to become China's largest trading partner.
Woods argues that, across the continent, technological development will be the "way of the future." She points to innovations such as mobile banking and the massive penetration of mobile phone technology, as positive developments. "The combination of the fast-growing youth bulge—workers aged 16 to 30—and technological innovations are positive and bode well for the continent," Woods said.
Considering these factors, there is reason to believe that, despite challenges, Africa will continue to produce dynamic, emerging market economies. South Africa, Nigeria, Ghana, Angola, and Ethiopia may just be the first wave—with many more to follow.
Francis Njubi Nesbitt is an associate professor of Africana Studies at San Diego State University. Previously, he worked as a reporter and editor at the Daily Nation in Nairobi, Kenya; the Seattle Skanner in Seattle, Washington; and the Union-News and Sunday Republican in Springfield, Massachusetts. He is the author of Race for Sanctions (2004) and Politics of African Diasporas (2012). His writing has been published in numerous journals including African Affairs, International Journal of Southern African Studies, African Issues, African World, and Africa World Review, and he is a regular contributor to Foreign Policy in Focus.


















Bharat Petroleum Beats Asia Refiners on Africa: Corporate India

                              
Bharat Petroleum Corp. (BPCL) is the best- performing energy stock on the MSCI AC Asia Pacific Index this year and analysts say its foray into exploration in Africa to counter refining losses may mean there’s more growth to come.
Bharat Petroleum’s 54 percent surge this year makes it the only refiner among the top 10 gainers on the MSCI AC Asia Pacific Index and the best performer on India’s 50-share Nifty Index. (NIFTY) India’s second-biggest state refiner holds a 10 percent stake in a block offMozambique, the site of the biggest natural gas discoveries in a decade.
The company, based in Mumbai, is emulating PetroChina Co. (857) and China Petroleum & Chemical (386) Corp. in acquiring overseas oil and gas assets to reduce the risk of refining and selling fuels at state-controlled prices. A discovery reported on May 15 in the Mozambique block operated by Anadarko Petroleum Corp. (APC) may increase gas reserves by 66 percent, enough to supply China and India for eight years, based on 2010 consumption.
“Bharat Petroleum is clearly diverging from its Indian state-run peers because of the strong progress in its exploration portfolio,” Alok Deshpande, a Mumbai-based analyst with Elara Securities Ltd., said yesterday. “Investors can look forward to even more upside.”
Bharat Petroleum fell 2.2 percent to 735.85 rupees in Mumbai yesterday. The company’s advance this year compares with a 5.8 percent gain at Indian Oil Corp., the nation’s biggest refiner, and a 21 percent rise at Hindustan Petroleum Corp.
Elara’s Deshpande and Stuart Murray increased Bharat Petroleum’s 12-month target price to 890 rupees a share from 800 rupees. They assigned 535 rupees a share, or 60 percent of the target, to exploration and production, according to a May 16 report.

Gas Potential

S. Varadarajan, director finance at Bharat Petroleum, didn’t answer two calls to his mobile phone seeking comment and an e-mail query sent to spokesman M.M. Somaya wasn’t immediately answered.
The Mozambique block may have as much as 50 trillion cubic feet of gas, according to a May 12 statement. The reserves may be enough to support construction of a gas liquefaction terminal to export the fuel to Asia’s biggest economies.
Bharat Petroleum reported the new discovery in Rovuma Area 1 in the Indian Ocean. The Golfinho exploration well found 7 trillion to 20 trillion cubic feet of recoverable gas, according to the statement. That adds to the reserves in the Prosperidade find, which holds as much as 30 trillion cubic feet, the company said.

‘Best Hedge’

Bharat Petroleum and local rivals Indian Oil (IOCL) and Hindustan Petroleum sell fuels below cost to help Prime Minister Manmohan Singh’s government curb inflation. The companies lose a combined 5.1 billion rupees every day on the sales and lost 1.4 trillion rupees in revenue in the year ended March 31, according to oil ministry data.
The refiner posted losses in the first two quarters of the year that ended on March 31 after India’s government failed to compensate the company for selling diesel and cooking fuels at less than market rates. The company is scheduled to report fourth-quarter earnings on May 25.
“The gas discoveries are the best hedge against below-cost fuel sales in India,” Gagan Dixit, an analyst with Quant Broking Pvt. in Mumbai, said by telephone yesterday. “It’s getting to a stage where a quarter of Bharat Petroleum’s value is from the gas discoveries.”
Dixit raised Bharat Petroleum’s exploration valuation by 11 percent after the latest discovery. The Mozambique assets add to Bharat Petroleum’s ventures in offshore Brazil with operator Petroleos Brasileiro SA and in Indonesia.

Analyst Consensus

Of the 45 analysts covering Bharat Petroleum, 25 recommend buying the stock, 15 suggest holding and five advise selling it, according to data compiled by Bloomberg.
The consensus of analyst recommendations for Bharat Petroleum is 3.84, higher than Indian Oil’s 3.54 and Reliance Industries (RIL) Ltd.’s 3.75. PetroChina’s 4.11 rating and Cnooc Ltd.’s 3.94 are better.
Reliance Industries, owner of the world’s largest refining complex, has declined 1.1 percent this year as output from India’s biggest gas deposit dropped. Production at the KG-D6 block is just half of its target, after output fell for a second year. Reliance, controlled by billionaire Mukesh Ambani, started commercial production in the area in April 2009.
“Exploration is always a risky business and you can never know how much gas can be brought out of the ground,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. “It’s just estimates and too early to say how much gas will be produced from Mozambique.”

PetroChina Profit

PetroChina, China’s biggest energy producer, posted an increase in first-quarter profit after it ramped up oil and gas production, while China Petroleum & Chemical, Asia’s biggest refiner, posted a slump in earnings on losses from selling fuels at state-controlled prices.
Royal Dutch Shell Plc, Europe’s largest oil company, agreed to buy U.K. explorer Cove Energy Plc, which has an 8.5 percent interest in Rovuma Area 1. Anadarko holds 36.5 percent of Rovuma Area 1, Japan’s Mitsui & Co. 20 percent, India’s Videocon Industries Ltd. (VCLF) and Bharat Petroleum unit Bharat PetroResources Ltd. 10 percent each, and Mozambique’s state oil company 15 percent.
By Rakteem Katakey - May 17, 2012
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net



Forget China: This Country is a Much Better Investment


Every few weeks, another major manufacturer announces plans to shut down production in China and bring jobs closer to home. Some companies such as GE (NYSE: GE [1]) aim to boost production in the United States (GE will make hot water heaters in Kentucky, for example). That's because China is no longer the bargain it once was, thanks to a rising minimum wage [2] and a strengthening currency [3]. It's important for investors to be aware of this trend, because economists say it will only build in the years to come, as China's wages and currency are expected to rise even higher.
Perhaps the greatest beneficiary of this trend will be Mexico, which will always remain a low-cost environment for manufacturers. Since the North American Free Trade Agreement (NAFTA) [4] was ratified in 1994, Mexico has seen a steady rise in goods shipped north of the border. More than 70% of Mexico's exports head to the United States, and that figure is expected to hit 75% in 2012. It's telling that even as global economies slumped in 2011, Mexico's exports still rose 13% to $336 billion, according to the CIA World Factbook.
Perhaps the clearest sign of increased economic activity can be seen in airport traffic. Aeroporuario del Sureste (NYSE: ASR [5]), which operates nine regional airports, recently announced that passenger traffic rose 10% in January from a year earlier. Business executives scoping out new manufacturing opportunities are likely part of that spike.
Rising exports are creating myriad benefits from Mexico. First, thousands of workers are finding jobs in factories each year, pushing them from subsistence living into the lower middle class. That boosts demand for all consumer-facing businesses. Second, the firms that transport goods are seeing a rise in business. Lastly, the government is able to secure rising tax receipts, which is crucial when you consider that government-owned energy giant Pemex is seeing falling output in key energy fields, leading to reduced remittances to the government.
These three investments are a great way to play the surging Mexican export sector.
1. Celadon Group (NYSE: CGI [6])
This U.S.-based trucking and logistics [7] firm operates six freight terminals across Mexico, augmenting its 11 terminals spread across the United States and Canada.
Moving goods across the border used to be quite costly for Celadon (and its customers), as Mexican drivers were prohibited from driving freight more than 16 miles into the United States. Thanks to new legislation enacted last spring, that restriction has been dropped, helping Celadon and its peers to better compete with rail-focused freight carriers.
Sterne Agee calls Celadon a "prime way to invest in the re-energized Mexican manufacturing economy [8]." The firm expects the lower costs associated with Mexican border crossing arrangements to steadily boost profits. They estimate Celadon's operating profit [9] will rise from $23 million in fiscal (June) 2011 to $35 million this year and $44 million in fiscal 2013. Shares [10] have posted a recent rebound but still remain roughly 20% below Sterne Agee's $18 target price.
2. NI Holdings (Nasdaq: NIHD [11])
This company, formerly known as Nextel International, is a major wireless phone service provider in Mexico, Brazil, Peru and Argentina. Its push-to-talk service has made it a big hit with business customers, helping NI Holdings to garner an industry-leading $50 in monthly ARPU (Average Revenue Per User). The company's focus on corporate customers should continue to pay off as more multinational firms develop facilities in the region.
NI is now investing in 3G Spectrum in each of these countries in order to tap into data-happy consumer markets. Meanwhile, shares have fallen almost 50% from their 52-week high [12] on fears that price wars will sap margins. The company's decision to ramp up marketing expenses to maintain market share [13] didn't sit well with investors, though. Yet a recent spate of insider buying helps underscore the notion that profit [14] fears may be overblown. Six insiders bought a collective $2 million worth of stock in the past two months. Analysts note that at less than four times trailing EBITDA [15], NI Holdings is the most inexpensive stock in its peer group.
3. Grupo Televisa (NYSE: TV [16])
This media firm has seen its shares drift from $30 to $20 in the past five years, even as its long-term outlook has never been brighter. A rising middle class that is being created from all of the new manufacturing jobs is helping boost ad rates for firms like Televisa, which is the largest producer of Spanish language content in the world.
Televisa is also looking to tap into the English-speaking Hispanic market [17] in the United States, as second-generation Mexican-Americans seek more programming in English. That's a wise move, because the Latino portion of U.S. society is the fastest-growing demographic group. Televisa's exposure to Spanish speakers and English speakers helps create a broader and more compelling platform for advertisers that want to develop cross-border ad campaigns.
Risks to Consider: When the U.S. sneezes, Mexico catches a very bad cold. The country's economy is increasingly dependent on the U.S. for trade, and a slowdown in economic activity here would be deeply felt across the border.
Action to Take --> All three of these companies stand to benefit from Mexico's coming growth spurt. Investors that simply want broad-based exposure to the economy should consider a low cost exchange-traded fund (ETF) [18] such as the iShares MSCI Mexico Investable Market Index (NYSE: EWW [19]). The Global X Mexico Small cap ETF (Nasdaq: MEXS [20]), which was launched last spring, has a very appealing focus on Mexico's smaller, faster-growing companies. This ETF is still too illiquid [21] and immature to recommend at this point -- but surely worth monitoring.


By David Sterman
Published 02/10/2012 - 08:30


Ghana hatches start-ups with high hurdles

West African entrepreneurs seek to chart future of Internet
ACCRA, Ghana (MarketWatch) — In a light blue, three-story concrete house in the suburbs of Ghana’s capital, young entrepreneurs are developing online applications they hope will make them into the Mark Zuckerbergs of Africa.

They spend long days and nights coding, strategizing and preparing to launch new software companies in an environment where competition is becoming stiffer and more Ghanaians are striving to create Web-based offerings they dream might become the next Facebook.
These entrepreneurs are the top graduates of the Meltwater Entrepreneurial School of Technology, an academy at the center of one of the highest-profile efforts to boost software development in sub-Saharan Africa. At the school’s incubator, as well as in other classrooms and informal gatherings around the country, a burgeoning number of tech-savvy people are charting the future of the Web in Africa and hoping to influence the world’s online ecosystem. But they face high hurdles in a continent with low Internet penetration and poor infrastructure, as well as scant progress in literacy.

MEST
The Meltwater Entrepreneurial School of Technology campus. With the MEST Incubator facilities next door, trainees can interact with those starting new companies.
MEST, set up in 2008 by Jorn Lyseggen, a Norwegian tech entrepreneur and chief executive of the Meltwater Group, graduated its first 20 students in 2010 and 20 more last year. At the light-blue incubator next door, graduates are using seed funding of between $30,000 and $200,000 to develop software businesses that will reach both Ghanaian and global markets.
“What we are trying to do is create a demonstration effect through companies and illustrate that software is a medium to achieve great things,” said Michael Szymanski, MEST’s director of business development.

Explosive growth in mobile Web

Many of the software firms being set up by the entrepreneurs at MEST are mobile-based, with developers acutely aware that most Africans now access the Internet via wireless phones.
In 1998, there were fewer than 4 million on the continent, but today there are around 500 million, according to the 2011 Mobile Africa Report, published by Internet organization Mobile Monday. Ghana currently has a mobile-phone penetration of 80.5%, the country’s National Communications Authority says.
However, Ghana and Africa as a whole are still lagging far behind other nations and regions in terms of Internet usage and access. The continent only has an Internet penetration rate of 11.4%, compared with the world average of 30.2%, according to Internet World Stats. Ghana is well below the African average, with 5.2% penetration. But telecommunications companies such as Vodafone Group PLC (NASDAQ:VOD) , South Africa’s MTN Group Ltd. (JNB:ZA:MTN) and Glo are expanding Internet service in Ghana. It may be just in time: Almost 40% of the population is under age 15.
Click to Play

How young’s too young to be CEO?

Facebook’s Mark Zuckerberg (above) is 27 and Groupon’s Andrew Mason is a few years his senior. Dennis Berman and Evan Newmark discuss. (Photo: Getty Images)
Projects being developed at the MEST incubator include Claimsync, an online system for processing health-insurance claims; Saya, a Web-to-SMS chat application suitable for lower-end phones and BlackBerrys; and Streemio, a music-streaming service.
Another is Nandimobile, which makes software that companies can use to communicate with customers via SMS and search for patterns in queries so they can quickly respond to customer requests. In February 2011, Nandimobile won the “Best Business” award at the Launch conference in San Francisco, in competition with almost 100 Silicon Valley start-ups.

More than MEST

Interest in tech development in Ghana extends well beyond MEST and its incubator. In the nation’s major cities including Kumasi, young techies are pushing the boundaries of software development, social networking, tweeting and blogging. Forums like BarCamp, TEDx Ghana and events such as Accra Startup weekends — where software entrepreneurs have 54 hours to create a viable Web or mobile application and business model — attract hundreds of Ghanaians.
Chapters of the group Mobile Monday, which sprang up in different cities around the world about 10 years ago, meet monthly in Accra. In Kumasi, weekly forums focus on the way in which mobile apps can be used to improve basic services in the country. “When I’m at the Mobile Monday events, I feel like I am at any tech conference or informal meeting of tech entrepreneurs in Silicon Valley,” Szymanski said.
Ghanaian Web developer Bobby Okine, who works with the IT department at Ghana’s Kwame Nkrumah University of Science and Technology, and Haitian-American Pierre Bruanche Jr. decided to start up mFriday events, a takeoff of Mobile Mondays, after undergraduates at the school expressed an interest in software development.
“We identified those who were technically competent, selected some people to train,” said Okine. “We have it up and running now; there are over 200 students.” Visit the mFriday site.
While Internet developers are optimistic about the future for software development in Ghana, they face a number of hurdles. Edward Amartey-Tagoe, a co-founder of Nandimobile, said the main challenge is coming up with applications that are appealing to and usable by people outside of Ghana, which is about the size of Oregon and has a relatively small population of more than 24 million and fairly low — if rising — literacy.
“We have enough brainpower to come up with the kind of software; the problem is whether or not we will have enough usage locally and whether we can get enough people in Ghana and in Africa to use the software,” Amartey-Tagoe commented. “That problem is tied to our low levels of income and low literacy rates. … When you come up with apps that are complicated, you don’t get too many people using them.”
Yet the success of companies such as Esoko, a mobile-based agricultural information platform that allows farmers, businesses and organizations to receive and share prices and other information via text message, shows that Web-to-SMS applications can cater to groups of people with lower levels of education and technological skill.
Esoko, formerly TradeNet, was launched in Ghana by Welsh-South African tech entrepreneur Mark Davies in 2005 and now provides market and pricing data to around 10,000 farmers in Ghana alone. Information from the 16 African countries in which Esoko operates is channeled through the company’s modern, three-level office in the heart of Accra, where 65 Ghanaian developers and support staff work.

Homegrown talent

Kwesi Acquah, a Ghanaian blogger who works in the communications department at Esoko, said that most of the developers at the company and in Ghana had been educated here at home: “Most of the older generation of Ghanaian developers went abroad, but you will find developers of this generation were trained locally.”
Dr. Nii Narku Quaynor — often called “the father or the Internet in Africa” because he established some of the first connections in Ghana and other parts of West Africa — long has argued that the Internet has a central role to play in driving economic development throughout the continent and bridging the north-south economic divide.
Dr. Nii Narku Quaynor
In his office in Accra, the 62-year-old Quaynor fiddles with an iPhone as his iPad sits in front of him. “We have to be involved,” he said. “If you are not involved, you are just a consumer of foreign things. But you want these things to be localized to fit your environment.”
Quaynor has often spoken about the emancipatory potential of the Internet for Africa and argues that more needs to be done to increase Web penetration in Africa and to boost innovation and technology education across the continent. He also makes the case that the Internet can help strengthen democracy efforts, in a place where dictatorship and war have cast long shadows.
“Let’s democratize it and make sure everyone can get involved,” Quaynor said. “It’s a revolutionary mission.”
Back at MEST, Szymanski and the new generation of developers in Ghana think the small West African nation is well on its way to becoming the continent’s nerve center for software development.
“I split my time between Ghana and San Francisco, and in terms of the quality of the ideas I don’t see much a difference,” he said. “The creativity is there, the excitement is there, the networks are developing and I think that it could be new the Web hub of Africa"
By Clair MacDougall

YPF Should See Good Growth On Near 1 Billion BOE Discovery



 By: David White January 30, 2012  |  about: YPF, includes: APA, APEOF.PK, CLR, HES, MDLNF.PK
YPF Sociedad Anonima (YPF) is best known as a great dividend payer with an annual dividend of $3.35 (8.40%). YPF is an energy company based in Argentina. It engages in exploration, development, and production of crude oil, natural gas, and liquefied petroleum gas (LPG) in Argentina. The company is involved in refining, marketing, transportation, and distribution of oil and a range of petroleum products, petroleum derivatives, petrochemicals, LPG, bio-fuels, and gas separation and natural gas distribution operations.
As of Dec. 31, 2010, it had proved reserves of approximately 531 million barrels of oil and 2,533 bcf of natural gas. It had a retail distribution network of 1,622 YPF-branded service stations for automotive petroleum products. It had approximately 2,700 km of crude oil pipelines with approximately 640,00 barrels of aggregate daily transportation capacity of refined products. It had crude oil tankage of approximately 7 million barrels, and it had terminal facilities at 5 Argentine ports. It also participates in 3 power stations with an aggregate installed capacity of 1,622 megawatts. It is a subsidiary of Repsol YPF, SA.
All of this seems great. The company has great assets. However, it has one big liability. It and its assets are virtually all in Argentina. Argentina has laws that give absolute priority to domestic supply at low, stable prices in order to sustain an economic recovery. YPF also has to pay substantial export taxes on the petroleum products it does export. In fact these taxes may reach 100% for any amount over the reference price in the case of natural gas. Still, "oil" exports are usually more profitable than domestic sales, and this new discovery should mean that YPF will have significant extra oil to export in the near future.
The new field in the Vaca Muerta Basin of Nequen Province of Argentina, announced in Nov. 2011, is thought to contain 927 million Boe of which 741 million barrels is oil. Given the recent data from US shale drillers such as Continental Resources Inc. (CLR), this is more likely to be an underestimate than an overestimate. CLR has been getting higher productivity out of its Bakken fields than first estimated. It has recently identified several extra benches in the Three Forks play (underneath the Bakken) that it now considers commercially viable. The technology and knowledge for oil recovery from shale continues to improve.
It only seems logical that YPF will be able to recover more oil than its first estimate. Plus, there are likely to be many more oil shale fields in Argentina, which is lagging the US in oil shale exploration. In fact there are likely to be many more oil fields in the Nequen Province's Vaca Muerta Basin in which YPF controls a whopping 4,600 square miles. If so, YPF is almost certain to be one of the huge beneficiaries of such future exploration. The fact that such companies as Apache Corp. (APA), Exxon Mobil Corp. (XOM), Americas Petrogas Inc. (APEOF.PK), Total SA (TOT), and Madalena Ventures Inc. (MDLNF.PK) are also exploring the Vaca Muerta Basin should lend credence to its likely riches.
Future finds aside, going by just the original estimate of 927 million Boe and 741 barrels of actual oil, it does not take complex math to see that YPF has, by this one discovery, significantly boosted its "real" oil reserves. It claimed only 531 million barrels in proved reserves at year end 2010. This new discovery should ensure that YPF will be able to grow significantly over the next few years. The new discovery should greatly alleviate worries about the dividend and about stock price growth. The discovery has turned YPF into a strong buy, even with the significant government strictures.
With Argentina trying to emulate Brazil as an emerging economy, it does not have a strong desire to start nationalizing assets. This should not be an issue. Plus, Goldman Sachs has estimated an average price of $112.50/barrel for WTI oil in 2012. World estimates for oil are for between $110 and $130 per barrel. This is significantly above the average price achieved in 2011. By itself this price gain, if realized, should allow YPF to grow significantly. The internal price of oil is "dictated" by the government, but even this "dictated" price tends to move upward with the market much more so than the natural gas prices. The new oil should be a huge boon to YPF, even if it is not exported.
The two year chart of YPF gives technical support for this trade.
click to enlarge

The slow stochastic sub chart indicates that YPF is near over bought levels for the near term. This might bring some hesitancy toward buying YPF in the near term. However, the magnitude of the new find and likely follow on finds on the fundamental picture for YPF makes YPF a still excellent risk, especially considering its dividend yield of 8.40%. The stock price has recently pushed upward through its 200-day SMA. YPF's 50-day SMA is currently moving upward, and it seems likely to cross through its 200-day SMA in a matter of days or weeks. Such a cross would be a very technically bullish signal for the stock.
Given that the overall market is highly overbought currently, it might be best to average into YPF. Yes, it does seem likely YPF will continue to move higher, but it will also likely move to a large degree with the market. Still, with a high dividend it has a beta of only 1.16, even though YPF is in politically less stable Argentina. This tells you just how strong this stock is thought to be. YPF is very comparable to Hess' (HES) beta of 1.05, which is a company with large oil shale assets in the US (and service stations, etc.). The first near term target will be about $46. YPF seems highly likely to reach this in 1H 2012. From that support point YPF is likely to challenge its recent high of $52.40.
Logic says the new discovery (and eventual good development progress reports and/or subsequent discoveries) will mean YPF's stock price will likely exceed this high within the next 1-2 years. You should get good stock price growth and a great dividend during that time. Naturally, this outlook is dependent on the price of oil to a large extent. In this regard, it is comforting to know that we are in a worldwide secular bull market for oil. It may have temporary falls, but the increasing demand from emerging economies will continues to pressure oil prices to the upside longer term. The worst case scenario seems to be that you will just collect your 8.40% dividend (presuming you ignore any "flash crash" like scenarios). That's a good return just by itself.
Good Luck Trading.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in YPF over the next 72 hours.
By: David White January 30, 2012



Banco Bradesco: Banking on Brazil

With superior asset quality and conservative loan policies, this bank is the top play on Brazil's economic growth.



One of Brazil's most favorable characteristics is a strong banking system, a sector that should benefit as investment flows return to the country.

Banco Bradesco (BBD -0.58%) is our favorite bank to gain exposure to this sector. Banco Bradesco is Brazil's second-largest private bank, with over 40 million customers and more than 4,000 braches.

The lender controls around 15% of the market in term of assets. Banco Bradesco also boasts sizeable leasing, insurance, private pension funds, and asset management business lines.

The bank is famous for its superior asset quality and its conservative loan policies. As a result, its non-performing loan (NPL) ratio remains below 4%, and although this figure has been rising recently, the NPL ratio should continue to hover at this level.

Banco Bradesco's insurance business (30% of earnings) is one of the best run in the country. Additionally, this unit has shown resilience throughout the economic cycle and could offset a lackluster performance in the bank's other units as the global economy slows.

The bank's insurance business controls 50% of the country's health insurance market, 28% of Brazil's life insurance market, 21% of the country's market for pension plans and 10% of the auto insurance market.

Rising incomes and the strength of Banco Bradesco's brand should drive customers to its insurance offerings. Insurance premiums represent only 3.4% of Brazil's gross domestic product, compared to about 7% to 8% in developed countries, leaving ample room for growth.

The lender has pursued an organic growth model in recent years that has raised operational expenses while offering a more stable growth pattern. This trend should continue in 2012.

The stock trades at 10.3 times trailing earnings and 2 times book value while offering a 22% return on equity.

Investors will also receive a 3.5% dividend yield that should cushion their portfolio during times of economic distress. A new addition to the Long-Term Holdings Portfolio, Banco Bradesco is a buy up to $20.
By Yiannis Mostrous,  TheStockAdvisors on Thu, Jan 26, 2012 1:53 PM 
  


6 Must-Own Brazil Stocks For The Next Decade


 Includes: BAK, BBD, GFA, PBR, TNE, VALE
Many developed nations around the world are mired in debt and are likely to be lucky if they see even slow growth over the next 10 years. After suffering what some are calling a "lost decade," wherein investors have seen just about zero gains in the stock market for the past ten years, it's reasonable for people to question why they should put money at risk for huge losses when the net result has been so poor for many years.
The problem could be that economies like the United States are swimming in debt and it is too large to move the needle and see major growth for any length of time. Investors willing to look overseas, can find countries with much smaller economies which have the growth, much more reasonable debt levels and rising incomes.
Brazil offers all that, plus it is rich in natural resources like oil and metals. Brazil also has a stable government that has put in business-friendly policies. The country even recently became a net creditor nation, after years of being a debtor nation. Brazil's transformation over the past 20 years from a nation with high poverty rates to an emerging powerhouse and exporter is likely to continue in the next decade. Brazil will probably see increased interest from global investors, especially as the country takes to the world stage when it hosts the FIFA World Cup in 2014, and the Olympic Games in 2016.
Brazil is currently the eighth largest economy in the world. Many economists are expecting 5% growth from Brazil for the foreseeable future, it makes sense for most investors to consider some exposure to this dynamic economy. Here are a few Brazilian stocks that investors could post large gains for investors in the next ten years:
Gafisa SA (GFA) is one of Brazil's largest homebuilders. The company builds both lower-end housing that offers affordability as well as luxury properties with swimming pools and other amenities. The company has faced a number of challenges in the past year, including lower than expected earnings. Investors have punished the stock, and it currently trades near the 52-week low. However, Gafisa should see strong revenue growth in the future as the middle class in Brazil opts for home ownership. Buying on dips below $4.75 will probably pay off for long-term investors.
Here are some key points for GFA:
  • Current share price: $5.01
  • The 52 week range is $4.30 to $14.77
  • Earnings estimates for 2011: 46 cents per share
  • Earnings estimates for 2012: 83 cents per share
  • Annual dividend: 23 cents per share which yields 4.9%
Braskem S.A. (BAK) is a leading maker of specialty chemicals and plastics such as olefins, polymers, propylene, isoprene, fuels and others. Chemical stocks like Braskem have been hard hit by concerns that the global economy is sliding back into recession due to European debt issues. If demand for chemical products stabilize, then this stock has probably seen the lows, and will remain supported by the very strong dividend yield. This is a higher risk investment due to the economic concerns, so I would only consider a small position for now and average in over time.
Here are some key points for BAK:
  • Current share price: $14.56
  • The 52 week range is $13.75 to $32.30
  • Earnings estimates for 2011: 57 cents per share
  • Earnings estimates for 2012: 93 cents per share
  • Annual dividend: $1.03 per share which yields 7.3%
Tele Norte Leste Participacoes S.A. (TNE) is a leading provider of telecommunication services in Brazil. It offers mobile phone service, fixed-lines, Internet services and more. This company is poised to benefit from Brazil's rising population and higher incomes. As more consumers rise from poverty, they will want small luxuries like mobile phone services. The dividend is easily covered by earnings, and that means a dividend increase is possible. This looks like a solid buy for long-term investors.
Here are some key points for TNE:
  • Current share price: $9.77
  • The 52 week range is $8.49 to $19.22
  • Earnings estimates for 2011: $1.11 per share
  • Earnings estimates for 2012: $1.82 per share
  • Annual dividend: 50 cents per share which yields 5.1%
Banco Bradesco S.A. (BBD) is one of Brazil's largest banks, and offers financial products and services to both consumers and businesses. The banking sector is much healthier in Brazil compared to other countries, and it is supported by rising exports and incomes. Banco Bradesco shares recently dropped to about $16, which appears to be a support level for the stock. Waiting for dips to about $16 or below before buying makes sense.
Here are some key points for BBD:
  • Current share price: $17.68
  • The 52 week range is $13.98 to $21.34
  • Earnings estimates for 2011: $1.67 per share
  • Earnings estimates for 2012: $1.79 per share
  • Annual dividend: 11 cents per share which yields .6%
Petroleo Brasileiro (PBR) is major oil and natural gas company, based in Brazil. In recent years, a number of massive new oil finds have been discovered in Brazil. There are still plenty of opportunities for new discoveries off the coast of Brazil and other South American countries for this company to make. With so many central bankers printing money, hard assets like oil should continue to rise over time. That's why owning the top oil stock in a fast-growing and asset rich country like Brazil makes sense. The stock is trading just above the book value which is $27.01. Buying on dips is likely to pay off in the long run.
Here are some key points for PBR:
  • Current share price: $27.59
  • The 52 week range is $20.76 to $42.75
  • Earnings estimates for 2011: not available on Yahoo Finance
  • Earnings estimates for 2012: not available on Yahoo Finance
  • Annual dividend: 16 cents per share which yields .6%
VALE, S.A. (VALE) is based in Brazil and produces iron ore, steel, fertilizer and other basic materials. This stock has been under tremendous pressure due to concerns that the global economy would soften and that China could be headed for a hard landing. Since China is a major buyer of iron ore, this stock can rise or fall based on economic news from Asia. In the long run, any reduction in demand is likely to be only temporary, so buying this stock while it's cheap makes sense.
Here are some key points for VALE:
  • Current share price: $23.22
  • The 52 week range is $20.46 to $37.25
  • Earnings estimates for 2011: $4.52 per share
  • Earnings estimates for 2012: $4.03 per share
  • Annual dividend: 6 cents per share which yields .3%
Data is sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is forinformational purposes only. You should always consult a financial advisor.
By: Hawkinvest January 12, 2012 

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