MILLBURN, N.J. (Stockpickr) -- Last week, eyes and ears were focused on Europe as the region's banking and sovereign debt crisis continued to send shock waves through global markets. But some of the worst damage over the past week or so has occurred in the emerging markets.
Take Brazil for example. The Brazilian market index, the Bovespa, dropped 6.96% last week. That might not sound so bad given that the S&P 500 dropped 6.54% over the same period, but the Brazilian currency, the real, also declined dramatically, by about 6.6%. Taken together, the total loss in U.S. dollars was about 13.1%. Accordingly, the iShares Brazil ETF ( EWZ declined 12.06% last week. >>7 Top Stocks That Should Continue to Outperform There are several reasons why the commodity, currency and stock markets in the emerging markets are experiencing weakness.
The emerging markets are the economic growth engines around the world. In turn, the emerging-market countries rely on that growth, which is derived from manufacturing products for export to the more-established economies such as those in Europe and North America. As Europe faces severe economic problems and as fears of a new recession in the U.S. continue to surface, the emerging markets face a dramatic slowdown in their exports.
Despite the all-time-low short-term interest rates in the U.S., along with the decline in long-term rates as a result of the Federal Reserve's Operation Twist, the U.S. dollar and U.S. government securities were the subject of a massive flight to quality as global investors rushed to park their money in U.S. dollar investments and fled the euro and emerging-markets currencies.
Many of the emerging-market nations rely on extractive natural resources such as gold, silver, copper and crude oil to generate exports. As demand for those commodities fell last week and as over-margined traders liquidated their positions, commodity prices denominated primarily in U.S. dollars fell around the world.
BRIC nations may be starting some trade wars among themselves. Last week, Brazil placed a 3,000-basis-point increase in automobile tariffs. This comes after Brazil jacked up tariffs on steel imports. Presumably, the target was Brazil's largest trading partner, China. Maybe some side discussion between Brazil and China took place this past weekend at the G-20 meeting to calm down these trade issues.
In the United Nations, a push is being made to press for a vote on Palestinian statehood. Though President Obama and the U.S. will veto any such proposal, the issue is to global emerging markets uncertainty.
The best way to describe China Life Insurance ( LFC is as the MetLife ( MET - Get Report) of China -- only bigger. In fact, China Life is five times larger than MetLife in terms of market capitalization. The Chinese economy continues to grow at a rapid pace, of about 9.5% -- albeit at a much slower rate than it experienced over the past few years. As more Chinese purchase automobiles, the need for insurance will increase. Chinese savings will be poured into annuities and life insurance products. >>5 Life Insurance Stocks With Up to 64% Upside China Life, which was founded in 1949 and is well-established throughout the country, has a very strong balance sheet with very little debt. I first bought shares of China Life when shares were publically issued in the ADR market in 2004 and have followed it ever since. I sold shares over time, liquidating the last small amount at just under $47 earlier this year. With the stock now selling at $35, below price levels of the financial crisis of 2008-2009, I am seriously considering re-entering a position in the stock. >>Practice your stock trading strategies and win cash in our stock game.Telefonos de Mexico If China Life is the MetLife of China, then Telefonos de Mexico ( TMX, commonly referred to as Telmex, is the AT&T ( T of Mexico. And at its helm is the Warren Buffett of Mexico, Carlos Slim, who also controls America Movil ( AMX, the Latin American wireless communications company. Telmex provides telecommunications services such as long distance and broadband services throughout Mexico and in Latin America. Telmex declined 5.35% last week, excluding its quarterly ex-dividend of 23 cents. Most of that decline was forex-related; the Mexican peso fell 4.8% last week. Just as AT&T is a low-growth high-yielding stock, so is Telmex, with a dividend of about 6%. >>20 Top-Yielding Telecom Stocks Of all the stocks I have placed in this portfolio, Telmex is the one that offers the most consistent long-term stock price stability with excellent income generation. Please note for those of you who look at charts that the company issued a one-time special $17 dividend in June 2008.
Petroleo Brasiliero
Petroleo Brasiliero ( PBR - Get Report), or Petrobras as it is commonly referred to, is the largest integrated oil company and largest company in Latin America. The company sold shares in the largest-ever public stock sale in September 2010 and held its price pretty much up until August of this year. Then the global wheels came spinning off. Last week, Petrobras got hit with the triple whammy of declining crude oil prices, a weakening Brazilian real and a weak stock market. If there was ever a time to get contrarian on a particular stock, now is that time with Petrobras. >>10 Energy Stocks That Could Outperform The weakness in the crude oil market and Petrobras will not last forever. Petrobras sells for about 6 times earnings, compared with 9 times earnings for ExxonMobil ( XOM and 8 times earnings for Chevron ( CVX. Here is an opportunity to take advantage of a company with a very promising future in an ever-growing part of the world at a very cheap price. Petrobras, one of George Soros' top holdings, was featured recently in " 6 Core-Income Bargains." Arcos DoradosArcos Dorados ( ARCO - Get Report) is the Latin American franchisor of McDonald's ( MCD - Get Report) restaurants. The stock slid more than 15% last week. Just last week, Arcos Dorados announced its first-ever dividend of 6 cents per share since going public earlier this year. McDonald's continues to generate strong sales growth all around the globe and has performed extremely well, declining a mere 1% last week and rising about 16.4% on a total-return basis for 2011 year-to-date. Last Friday, Raymond James initiated coverage on McDonald's with an outperform rating and a $95 price target. The stocks was featured recnetly in " 5 Stocks to Trade for End-of-Month Gains and on a list of 20 Top-Yielding, Top-Rated Stocks to Buy. One thing we do know about McDonald's is that the company performs well in challenging economic conditions -- and Arcos Dorados should be no different. The decline in ARCO is an opportunity to pick up a strong company at a severely discounted price. Additionally, Arcos Dorados was one of the top stocks with the most hedge-fund action in the most recently reported quarter.
IncrediMail
IncrediMail ( MAIL produces digital media solutions for desktop applications in10 different languages, for sale in more than 100 countries worldwide. In particular, the company has a fascinating product that allows users to customize e-mails and better perform searches. Sales and earnings per share for IncrediMail have nearly tripled from 2006 to 2010. What is really intriguing is that the company holds about $30 million net in cash and short-term investments. The net cash balance is nearly two-thirds of the stock's market cap. The company is looking to expand further into the digital media and desktop solutions arena, having recently closed on the acquisition of SmileBox, a photo-sharing company based in the U.S., and secured a $20 million credit facility for future acquisitions. IncrediMail's stock was performing quite well through the middle of July but has been disappointing ever since the summer correction began. Selling at 5 times trailing earnings and with a big cash hoard, IncrediMail makes for an interesting opportunity in the microcap space. IncrediMail, one of TheStreet Ratings' top-rated Internet stocks, is also one of the highest-yeidling computer software and services stocks. To see these stocks in action, visit the 5 Post-Market-Slide Opportunities in Emerging Markets portfolio on Stockpickr.
Citigroup, the giant U.S. bank, is expected to report first-quarter earnings roughly equivalent to those from a year earlier, even after rival JPMorgan Chase posted a 5% increase. Citigroup CEO Michael Corbat, who this week announced major changes in his senior leadership team, is expected to provide commentary on how the bank is faring amid a slowdown in global economic growth.
Rob Isbitts says the powerful uptrend in global stocks is alive and well, but investors should be prepared for the possibility we are in the eye of the storm, and the lows of 2018 could yet be taken out.
