International Investing Strategy

By pjain      Published Aug. 18, 2020, 7:47 p.m. in blog Invest   

International Investing Strategy

Global Banks

  • India and China each have populations of roughly 1.4 billion people, and rising productivity per person could allow both economies to surpass the size of the U.S. economy by 2030.

Europe, FTSE 100/250 direct investing

Europe Indexes, ETFs and Investing Overview

Europe Indexes, ETFs

  • FTSE 100 - mostly international cos 81% of LSE
  • FTSE 250 - mostly uk
  • FTSE SmallCap index 340
  • FTSE All-Share Index of 640 cos (aggs 100+250+Scap)
  • FTSE Fledgling Index

FTSE index mandates a Pound or Euro listing on LSE, norms for nationality, float and liquidity More free-float weighted factor not just mcap - used as an adjustment multiplier - this deemphasizes mostly closely held companies - more common on EU in smaller/medium caps esp. Germany family held

International Europe Funds

  • 3 funds to look at holdings
    • Fundsmith Equity by Terry Smith exp 1%+ platform fees, 5yr 132% vs FTSE 41%, only dipped -8% in Q1'20 vs -25% ftse - STRICT high quality cos.
      • Consumer globals esp EMs - Unilever, Diageo, PEP, LOreal, Estee Lauder
      • Aging Population/Health/Dia - Coloplast, Stryker, JNJ, Reckitt Benckiser, Novo Nordisk, Becton Dickinson
      • Digital/SaaS - PYPL, MSFT, Sage, Amadeus spanish travel, Intuit
    • Lindsell Train Global Equity 5y 147% Q1'20 -11% Nick Train mgr - 0.5% + platform fees
    • Blue Whale Growth new'2017 by Stephen Yiu fees 0.9% + platform fees

Key factors

Many large cos as ADRs - but often don't want supervision by US SEC

Stamp duty on LSE shares buy sell

Forex trends

Brexit to hurt MNCs - Trade duties - to hurt

Dividends, Buybacks cut sharply

ONLY 14 FTSE 100 firms have managed to raise their annual dividend for each of the last 10 years down from 25 at the beginning of 2020 as Covid slashes payouts. But only 4 of these 14 (Legal&Gen,Sage,DEO,BAT) were even in FTSE 100 - making it a VERY NARROW index to choose from - Dividend payouts for this year have also fallen by almost a third over that period from £91 b to £62 b

Good div payers

  • Diageo
  • British American Tobacco
  • Ashtead total return 10yr was 2590% highest in FTSE100
  • Halma total return 10yr was 932% highest in FTSE100
  • Legal & General insurer
  • Sage
  • Hargreaves Lansdown
  • Intertek Product testing business
  • Pennon Group water utility giant

Financials screwed as City no longer destination for EU banks/financials

Covid-19 - hurts UK as weak manufacturing, heavy consumer, urbanized economy

Irrational politics of racist conservatives who are arrogant and serve elites

UK as tax and legal haven Russia, India, China rich AND crooks find homes- would hurt ties and trade

Consumer Staples, Foods

  • Food & Drug Retailers

    • MRW Morrisons
    • OCDO Ocado
    • SBRY Sainsburys
    • TSCO Tesco
  • Discr Retailers

    • ABF - Associated British Foods recently cut its annual dividend as forced to close all Primark CLOTHING stores with no EC to offset
    • Next plc NXT General Retailers
    • Kingfisher KGF Retailers
  • Personal Goods

  • Unilever ULVR Personal Goods

CCF bottler

Discr, Sin, Entertainment, Travel, Media

  • Burberry BRBY
  • DGE Diageo - paying 10+ years dividend
  • Cineworld deep down - could bankrupt

  • Retail hospitality

    • Whitbread WTB
  • Flutter Entertainment FLTR Travel & Leisure
  • InterContinental Hotels Group IHG Travel & Leisure
  • GVC Holdings GVC Travel and Leisure

  • BATS British American Tobacco- paying 10+ years dividend

  • Imperial Brands IMB Tobacco

  • Media

    • Auto Trader Group AUTO
    • Informa INF
    • ITV plc ITV
    • RELX REL
  • Education, Publishing

    • Pearson plc PSON

Durable Goods

MRO Melrose - auto parts

Health

  • Health Care Equipment & Services - Smith & Nephew SN.

  • Pharmaceuticals

    • AstraZeneca AZN
    • GlaxoSmithKline GSK
    • Hikma Pharmaceuticals HIK

REITs, Real Estate

  • Household Goods / Home Construction

    • Barratt Developments BDEV
    • Berkeley Group Holdings BKG
    • Persimmon plc PSN
    • Reckitt Benckiser RB.
    • Taylor Wimpey TW.
  • Real Estate Investment Trusts

    • British Land BLND
    • Land Securities LAND
    • Segro SGRO
  • Home Builders

    • CRH Construction
  • Shopping mall

    • Intu Properties hurt bad

Materials

  • Polymetal International POLY Precious Metals and

  • Industrial Metals

    • Evraz EVR
    • Mining
  • Rightmove RMV Media
  • WPP plc WPP Media
  • Anglo American plc AAL
  • Antofagasta ANTO
  • BHP BHP
  • Fresnillo FRES
  • Glencore GLEN
  • Rio Tinto RIO

  • CRDA Croda chem

  • JMAT Johnson Matthey chem

Energy

  • x Oil giant Royal Dutch Shell cut its dividend for the first time since 1945 this year
  • BP BP. Oil & Gas Producers
  • Royal Dutch Shell RDSA Oil & Gas Producers

  • Gas distribution to hurt - British Gas owner Centrica drop into the FTSE 250

Utilities, Telecom

  • Regulated Utils

    • NG National Grid
    • SVT Severn Trent
    • UU United Utilities
  • Competitive Utils

  • Water Utilities

    • Pennon Group PNN Water
  • Telecom

    • BT-A British Telecom Group
    • Vodafone Group VOD

Industrials

  • General Industrials

    • DS Smith SMDS General Industrials
    • Smiths Group SMIN General Industrials
    • Smurfit Kappa SKG General Industrials
    • JD Sports JD. General Retailers
  • Industrial equipment / Rentals

    • ?buy Ashtead Group rental business has had the highest total shareholder return in the last decade
  • Defense, Aerospace

    • BA - BAE systems
    • RR - Rolls-Royce
  • Electrical

    • HLMA Halma - electronic, electrical equp

Services, Transports

  • Consumer Services

    • HSV Homeserve
  • Services

    • Ashtead Group AHT Support Services
    • Bunzl BNZL Support Services
    • Compass Group CPG Support Services
    • DCC plc DCC Support Services
    • Experian EXPN Support Services
    • Ferguson plc FERG Support Services
    • Intertek ITRK Support Services
    • Rentokil Initial RTO Support Services
  • Airlines in deep shit!

    • British Airways - business/flag carrier but no growth
    • EasyJet cut discount
    • WIZZ Air discount
  • International Airlines Group IAG Travel & Leisure

  • Engineering, architectural firms

    • Meggitt will drop down to FTSE 250
    • Spirax-Sarco Engineering SPX Industrial Engineering

Finance

BARC barclays HSBA HSBC NWG Natwest group STAN Standard Chartered

  • insurers
    • LLOY lloyds ADR:LYG
  • Admiral Group ADM Nonlife Insurance
  • RSA Insurance Group RSA Nonlife Insurance

  • Life Insurance

  • Standard Life Aberdeen SLA
  • Aviva AV
  • Legal & General LGEN
  • Phoenix Group PHNX
  • Prudential plc PRU
  • St. James's Place plc STJ

MNG - aum

  • PE, Equity investment

  • Mortgage

    • SMT Scottish Mortgage Inv Trust
  • Financial Services 3i III Hargreaves Lansdown HL London Stock Exchange Group LSE Schroders SDR

  • Investment Services, AUM

    • Intermediate Capital Group ICP

Tech

  • Semi Arm - now owned fully by Softbank

  • Software

    • Aveva AVV Software & Computer Services
    • Sage Group SGE Software & Computer Services
    • Avast AVST Software and Computer Services
    • Just Eat Takeaway JET Software and Computer Services

=== India Investing, EC, BigTech

Finance

HDB

  • Most profitably and best managed Indian Bank
  • Residential loans - high security, EMIs

  • About HDFC

  • 5,300 branches across more than 2,700 cities and towns.
  • HDFC is also a player in the digital payments space and looks poised to benefit from the war on cash.

China Investing, EC, BigTech

Firewall of China - Reaction by India/USA

  1. China has a firewall with extensive blocking, censorship and surveillance that violate internet openness and decency. China keeps a closed and censorial internet economy at home while its products enjoy full access to open markets abroad. China, in furtherance of this vision, bans not only most foreign competitors to its tech businesses but also foreign sources of news, religious instruction and other information, while using the internet to promote state propaganda and engage in foreign electoral interference. Few foreign companies are allowed to reach Chinese citizens with ideas or services, but the world is fully open to China’s online companies. This asymmetry has been a bonanza that has served economic as well as political goals.

Dueling internets seem to emerge

a. OPEN. Original was neutral internet connect everyone. Of course just because Anglos say net is open doesn't mean it is - it is open kimono to NSA/CIA/MI6 - all you can eat buffet for spying - just like the SWIFT system has now been sorely abused by US for its petty sanctions.

Reality is Facebook, Amazon, Google, YouTube, and all other internet application have been actively gathering all of this personal information, and selling it to unknown buyers not just advertisers. If we don't like a company's practice we should stop using their platform and handing them our data. There is no need to violate the core principles of freedom of speech and information.

b. NATIONALISM. Blocking and censorship of sites by nation-states and private balkanized firewalled - eg withn, Russia, Iran, etc. all managed by rulers

c. Aggressive security, hacking and invasion of outside internets, while controlling internal - China is most aggressive in this - get away with murder. This is backed up by its attempt to use its BRI into a 5G control of infrastructure.

  1. While criticized for targetting ban, Trump is doing nothing new. In China, the foreign equivalents of TikTok and WeChat — video and messaging apps such as YouTube and WhatsApp — have been banned for years.

Cyber-security an International Phishing and Scam magnet

Multiple high-tech companies have lookes at Tik-Tok software and marvel at how deceptive and far-reaching it is written to gather info and then CONCEAL what it does with it. You have to figure the best software engineers in China worked on this magnet for personal information - literally everything on a person's phone and where it currently is. These include officers directly employed by the red army - PLA.

Risks of Chinese Stocks

  • 1 ADR share of IQ Nasdaq is roughly equivalent to seven ordinary shares

Walmart in China

  • Competition - Bad problems

    • Carrefour supermarkets - sold out its dark,narrow,not popular, others sold to Suning some to WMT
    • Darunfa Tesco, Auchan
    • Suburb Big box stores failed some (HD,etc) as DIY failed - Less popular as many don't have cars - want to shop locally
    • Lots of their stores in China are closed, and the rest are facing fierce competition from local supermarkets.
    • usually in the city centers, and so they are cramped and smaller
    • Precooked fresh food is cheap - why buy grocery at WMT?
  • What is working in Retail - ikea worked well - chique fashion!

    • No 1 in China supermarkets
    • BUT Amazon is now withdrawing from China
    • Key tenant in large malls occupying 2-3 floors there, often underground parking, next to office/residential towers - NOT standalone big box
    • WMT adapted HEAVILY Cheap goods - live fish by the hundreds even cheaper than wet markets
    • Walmart tends towards very cheap things with “reasonable” quality - but Chinese often
    • Bad reputation for low quality Cheap garments for every day use.
    • Cross border products from USA popular eg almonds and pistachios.
  • Backs up supply chain

    • 12% of all Chinese goods come thru Walmart - MOSTLY Cheap clothes/shoes, etc. Packaged goods
    • Over 50% of Walmart USA’s sales are in groceries, almost none of which come from China. Top item is bananas from CentralAm
    • bakery, meat, etc. iikely to be frozen chains
    • WMT sells a lot of sodas,paper towels, toothpaste, pills, etc., made in North America
    • Cheap plastics, toys, electronics items likely to be all from China - but huge markup - so revenue/profits lower in China supplier
    • IN PARTICULAR Most of the Walmart branded stuff to be made under contract from China.

BZUN as EC stock

  • Provides website-creation tools and other e-commerce services - Baozun is sometimes referred to as "the Shopify of China"
  • Unlike SHOP, its customers are MOSTLY large companies - RISK as provides services for Western brands aiming to expand their presence in China - on tradewar hurt?
  • Shares DOWN 48% from their lifetime high two years ago due to slowing growth and tensions between the U.S. and China.
  • Shares could get Delisted

BABA

  • one of 30 most favored by hedge funds
  • largest online retailer in China
  • Provides B2B marketplace for China's factory floor to the world
  • As class act, beats local delivery services due to image for high-quality products and unmatched fulfillment infrastructure.

JD x b20 - GARP Amazon of China - less valued than

  • 2nd largest online retailer in China after Baba
  • JD to control its supply chain — no untrustworthy sellers here.
  • Innovative Company
  • Drones to remote rural auto landing
  • Scout-like local delivery
  • Auto retail stores low labor JD.com plans to open 1,000 7Fresh stores around China in the next 3-5 years and even more X-Supermarkets. X-Supermarkets are small convenience store-like shops (around 80 sqm) that offer around 500 products. Access is granted through facial recognition and payments are charged automatically to a credit card on file. The only job humans are responsible for in X-Supermarkets is keeping shelves stocked.
  • 7Fresh is an upscale grocery store that opened its first location in Beijing in 2017. These large grocery stores (around 4,000 sqm) focus on fresh foods, including those that Chinese buyers consider rather exclusive, like Spanish Iberic ham, Japanese seafood, and French pastries. And chefs are on-hand to cook the food immediately if desired.

IQ

  • 1 ADR share of IQ Nasdaq is roughly equivalent to seven ordinary shares

  • About video-streaming company iQiyi

China Media

  • Chinese economy is slowing and that doesn’t help revenue for ad-driven companies.
  • Also the all-in high PE are deflating in China - as investors realize the heydays are over for growth
  • Most of these often have bulk of public shares out in the west, though their accounting, etc are very opaque

BIDU

  • Search engine leader of China - high ad revenue
  • Struggling with stagnating economy in China BIDU stock is off 32% year-to-date and 50% in the past 12 months, this isn’t the time to go bottom fishing. We still need signs that the Chinese consumer is back on track.

TCEHY

  • competitiveLeader China msg,SN,Media,Gaming owns WeChat

SINA - owns Weibo WB

  • Struggling with stagnating economy in China The stock is off 16% year-to-date and 30% in the past year. It may experience a bump with the trade deal, but turning the Chinese economy around will be a different deal entirely. It also owns a number of other complementary sites that drive traffic in and between each other.

WB - china's twitter

Global EC, BigTech

  • Africa is on track to account for over half of global population growth through 2050, according to the United Nations,
  • Russia has managed its oil wealth better than most mideast countries, Also Germany Nord Stream2 and baltic sea - ensures Russias monopoly

YNDX R6 - search engine Russia

  • Core business: search engine and digital advertising services.
  • Yandex is one of Russia’s leading artificial intelligence companies
  • It also operates ridesharing and food delivery businesses, social networks, video platforms, and cloud services.

SRGH.Y

  • About Shoprite Holdings - headquartered in South Africa
  • Africa’s largest grocery chain positions it to benefit from economic and demographic tailwinds.
  • It operates roughly 3,000 locations across 15 countries.

South Korea Investing

South Korea has since the 1960s a major ally of the US, given a favored nation status and counter to mainland China along with Taiwan. It has had a consistent and explosive economic growth pattern and is the third-largest economy in Asia, trailing only China and Japan.

Its GDP per capita, at around $32,000 by IMF estimates, is slightly above the European Union average and is higher than Spain and Italy.

Demographic wall to be hit as its fertility rate, at 1.24 children per mother, is SUPER low - eventually hurting people available to work or produce!

Politically, the Korean business groups known as chaebol eg Samsung, etc. have deep ties with political masters of the country. This helped post WWII in giving great banking support and international trading.

Market Timing - 2020 Crisis but market still up!

  • Bank of Korea has cut rates twice since Mar'20.
  • June 2020 - Seoul announced a 35.3 trillion won, or $28.8 billion supplementary budget that raised the total stimulus to 270 trillion won or 15% of GDP for the economy as the country tries to recover for its worst growth since the 1998 Asian financial crisis. This was to protect jobs broad shutdown measures to quarantine the contagion. Money will be spent to bolster consumption and loans will be made to small- to medium-sized businesses suffering from the slump in sales and reduced consumption.
  • Exports have declined on reduced consumption globally, (even as China has strongly rising export surplus).
  • End 2020 RISK of debt - GDP to fall 0.1% from 2.4$ earlier. Raise debt-to-GDP to 44% from 40% end 2019.

EWY 0.59% exp $5b aum 113 stocks

  • Managed by Blackrock 0.59% exp, Launched 2000
  • It has $5b aum - 30x larger than next
  • It dominates foreign investors as GDRs banned for Americans, and even major companies like Samsung just not available in any liquidity even on grey market OTC.
  • Track MSCI Korea 25/50 Index of stocks on the Korea Exchange. The Index is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer exceeds 25% of the Underlying Index weight, and all issuers with a weight above 5% do not cumulatively exceed 50% of the Underlying Index weight.

  • Top 10 holdings already 50% of holdings

  • Samsung 21% (other subsidiaries or group companies probably >5% on top)
  • POSCO (PKX), Hyundai (HYMTF) and LG Chemical.
  • Underlying Index has heavy Concentration risk - heavy >25% in IT, significant concentration in Autos/Industry/Chemicals
  • Heavily Large Cap Weightings

DXKW exp 0.58% - more diversified

  • WisdomTree Korea Hedged Equity Fund - Hedged meaning currency
  • Very low volume 4,900 vs EWY 2.5m shares/day
  • Unlike EWY which has 22% in samsung electronics a mature company, DXKW has 9.5% invested in it and another 6% invested in Samsung SDI that makes lithium batteries a growth industry.
  • Hedging, EWY is not hedged against movements in the value of the South Korean won, whereas DXKW is. The won has added volatility to the Korean market for U.S. and other foreign investors. The currency lost 54% of its value during the Asian financial crisis of 1998, and it lost 41% during the 2008 global crisis.
  • BUT in 2020 Q3+, Dollar is weakening so, one problem is the value of the won rises relative to the dollar, you will not profit from this upside.

HEWY 0.59% USD-hedged

iShares Currency Hedged MSCI South Korea ETF The underlying MSCI South Korea 25/50 100% Hedged to USD Index consists of stocks traded primarily on the Stock Market Division of the Korea Exchange with the currency risk of the securities included on the Underlying Index hedged to the U.S. dollar on a monthly basis. The fund charges 59 bps in fees and added about 1.6% in the past three months.

DBKO 0.58% USD/Won hedged

Xtrackers MSCI South Korea Hedged Equity Fund DBKO - Underlying MSCI Korea 25/50 US Dollar Hedged Index measures the performance of the large & mid-cap segments of the Korean market - It hedges exposure to fluctuations between the value of the U.S. dollar and the Korean won.

HKOR 0.38% exp - ?? no longer active ??

  • Korea KOSPI 200 ETF is little known
  • Tracks a 200 blue chip
  • HAS short track record and low volume
  • Toronto-based Horizons ETFs Group launched it in 2014

FLKR 0.09% expense $20m 136 stocks

  • Franklin FTSE South Korea ETF
  • AUM $20m only
  • The ETF target large and mid-sized companies in South Korea, spreading investor exposure over many sectors including IT, consumer staples, consumer discretionary, materials, financials, and healthcare.

FKO - First Trust South Korea Alpha Dex Fund

This South Korean fund correlates with the Defined South Korea Index that uses an AlphaDEX stock selection methodology to select stocks from the S&P South Korea BMI universe that meet certain criteria. Some of these holdings include CJ Corporation, KCC Corporation, and KT Corporaton. And some of the top sectors represented are consumer discretionary and staples, energy, financials, and industrials.

Comparing ETFs

Year %EWY
2009 70%
2010 26%
2011 -11.7%
2012 20%
2013 3.5%
2014 -12%
2015 -6.7%
2016 7%
2017 44%
2018 -20%
2019 %
2020 %
  • Clearly as US economy recovered post GFC, South Korea stocks REALLY boomed for next few years.

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