How to make Money in the Stock Market.This blog looks at how you can make money trading and investing in Forex, Stocks Options and Futures.


Wednesday, 30 April 2008

How to get Fat profits from the Obesity Epidemic


It is well known that the worlds developed nations are increasingly struggling with the Health Crisis caused by Obesity. Type II Diabetes is on the rise and is increasingly being seen in younger and younger patients. Previously a disease of middle age ,it is not uncommon to see cases now in teenagers in the US and the UK.

It seems now though that this epidemic is spreading its wings beyond the UK and US and is going Global

The World Health Organisation projects that 2.3 billion people will be overweight by 2015 and a Obese personfurther 700 million will be obese – a staggering 45% and 75% increase from current levels.

What is the main underlying cause of this problem ? Well for the most part, it’s poor lifestyle. As developing economies grow rapidly, more and more people around the world are becoming richer and leading more urban lifestyles. That generally means eating more and doing less physical work compared with an agrarian lifestyle. In addition, stressed and harassed workers spending more and more time at work or their desks are increasingly defaulting to processed and prepacked food which is generally less good for you than freshly prepared meals.Longevity is another factor, as we get older and live longer more sedentary lives after  retiring  from work we can expect obesity levels  to rise further.

According to the International Obesity Task Force, the percentage of overweight and obese children in England has more than tripled since the mid-1980s to around 25%. As research suggests that around 70% of overweight children go on to become overweight adults, this is clearly storing up problems for the future.

The Rand Corporation, a US think-tank, estimates that if current trends continue, obesity could account for 20% of US healthcare costs by 2020. Of course, where there’s a problem, there’s someone trying to solve it – and that means investment opportunities.Given today’s tendency to try to solve problems by popping pills, the most promising way to make money from our expanding waistlines is via the pharmaceutical sector. 

A drug that can melt off the pounds is a holy grail for the pharmaceutical industry and several firms are trying to develop one. Two are already available – Roche/GSK’s Xenical and Abbott’s Meridia – but both have unpleasant side effects. Sanofi-Aventis had high hopes for Acomplia, but last year withdrew its application to market the drug in the US for weight-loss purposes after suggestions of increased suicide risks.

So we are possibly some way away from a safe well tolerated "Fat Busting Pill" there is also debate as to whether the financial pressures on the Worlds Healthcare systems will allow for funding to be generally available to pay for drugs that treat what can be a preventable disease .

Currently some of the best ways to play this trend is via the companies that treat diabetes. There are three or four companies that are well established in the market and would warrant further investigation, there are also one or two higher risk/reward plays that might be worth looking at if you are less risk averse

One established play is Denmark’s Novo Nordisk (US: NVO) around three quarters of its revenues  are from the $21bn diabetes-care market.It isn’t the cheapest pharmaceutical stock on the market, but offers a record of strong growth and high-quality management.


A shift towards higher-margin treatments, such as insulin substitutes, growth hormones and blood-clotting drugs is paying off, and double-digit profit growth should be sustainable – as long as new drug Liraglutide, which stimulates insulin production, performs well against a long-acting version of Eli Lilly’s Byetta.

Riskier, but with the potential for far higher rewards is Arena Pharmaceuticals  (US: ARNA) one of many firms trying to develop that blockbuster weight-loss drug. Its drug, Lorcaserin, stimulates a protein in the brain that makes people feel full – the same approach used by a previous drug called Fen-phen, developed by Wyeth. Fen-phen was withdrawn in 1997 after causing heart-valve damage in some patients, but the latest trials suggest that Lorcaserin will not cause the same problem. Further studies are continuing, but if all goes well, Arena plans to seek US regulatory approval in 2009.

If it comes to market the analysts view is that it will likely be a $1 billion drug and will make a real difference to the bottom line for Arena which currently has no products on the market


For those who are looking for a more steady and possibly safer play then you may want to look at GlaxoSmithkline (GSK).Over the last year they have had a real rough ride with their Diabetes drug Avandia after an article indicating it could cause cardiovascular problems . This resulted in a number of patents being switched to their rival Takeda's drug Actos.

Recent indications have been that the loss of prescriptions has slowed and may be reversing, Takeda are a lot smaller than their UK rival and they cannot match GSK in terms of Investment or resource so may find it increasingly difficult to hold off a sustained marketing onslaught from GSK.    

Best Wishes



Tuesday, 29 April 2008

Time to Buy Housing-Am I crazy......on the Contrary


A recent poll in Barron’s suggested that amongst its readers the most hated asset class (not surprisingly) was real estate investments and the most loved class was Latin American stocks so most of us would think that the right trade is to buy Latin stocks and sell real estate stocks.

Funny, then, that real estate stocks are now the best-performing sector this year... Simon Property Group – the benchmark real estate stock – is up more than 20% year-to-date.



Meanwhile, the Latin American Discovery Fund (LDF) a collection of South American blue chips, is down for the year.


How does this work ??

Quite simple really when everyone is bearish then there are little or no sellers available as everyone of any size has got out of the markets previously.When there is no one selling then the price stops going down-simple really !!


So as an example : In the second week of March  Simon Property Group (SPG)  traded for around $86. Now – just six weeks later – it's at $105.

Conversely the Latin American Discovery Fund peaked at the end of April and has treaded water ever since... Why hasn't it gone up? For the opposite reason -there's nobody left to buy – Everyone who wanted to be invested in Latin America had already bought.


You have to wait for the extremes in sentiment. The old saying is, "The crowd is wrong at the extremes, and right in between."

If we look at the Barrons poll... Only 3.6% of investors are bullish on 10-year Treasury bonds. So nearly everyone believes long-term interest rates are going up.

Currently Long term Interest Rates are less than 4% so most pople (based on theri past experiences thinks they are unlikely to go any lower. Lets cast our eyes over to the Far East, in 1990 Japan's Interest rates were about 7% when the property market crashed the rates fell to below 1% . Today they are still only 1.5%


All the talk is about the potential for inflation... and everyone expects interest rates to head higher. however it is entirely possible that long-term interest rates could surprise us all  and head  lower. Already, interest rates on 10-year Treasuries have fallen from more than 5% in the summer of 2006 to below 4% now.

If you want to follow the crowd , bet against real estate stocks and bet that interest rates will head higher. But if you are a contrarian  then to get extraordinary" returns, you must be willing to do something extraordinary.

I am buying the IShares Home Construction Index (ITB) I don't expect it to move up overnight but I think over 6 months it will be a good call.


Best Wishes



Monday, 28 April 2008

Starbucks focuses on Coffee ?


Starbucks Logo A little while back I looked at whether you should buy Starbucks or the Coffee ETF-Should I buy Coffee or Starbucks ?

My conclusion was that I thought Coffee would go higher and that as I favour for most commodity related stocks I prefer (if you can to buy the Commodity as there are a number of factors that can negatively impact on a stock that are not related to  supply and demand. That proved to be a fairly good call as Starbucks unveiled weaker-than-expected estimates for its fiscal second quarter and year--sending shares down a whopping ten percent last Thursday.

Like a lot of successful companies Starbucks in a bid to grow started to expand and diversify away from its core business-selling coffee.

Starbucks CEO Howard Schultz is trying to get Starbucks focused on coffee--which means the entertainment business it's been building up over the past four years is now due to be pared down.

After the market close last week, the company announced it will no longer be managing its Hear Music record label, which launched just over a year ago with Paul McCartney on board.0_61_mccartney_paul_030107 Schultz is also shaking up the entertainment division's management -- Ken Lombard, an SVP and president of Starbucks Entertainment "has left the company," which usually means code for "pushed out." Now the division will be run by Chris Bruzzo, Starbucks' Chief Technology Officer, indicating the division the direction is moving towards-- digital downloads, and away from old fashioned CD sales.

Last year Starbucks made a deal to offer access to Apple's iTunes music store, in 600 plus of its stores through WiFi networks, and just last week it announced that it'll be handing out cards to allow customers to access songs and music videos online-- for free.

Starbucks isn't getting rid of this division. It just doesn't want to be in the business of producing music. It'll keep selling music in stores, though it's unclear if the company will change the style or variety of music it sells.

The company is trying to learn from its mistakes. It has no more plans to market movies again as the two films it promoted in-store had quite disappointing box office performance, so there doesn't seem to be incentive on either end.

But Starbucks will continue selling books in stores and working with William Morris Agency to find projects they think will sell. And Starbucks is powerful in the publishing industry--almost like when Oprah picks a book, getting chosen to be sold by Starbucks register almost always guarantees that a book becomes a best-seller.

AS I said in my previous posts my personal preference is for Coffee itself and I am looking for an opportune time to buy the Coffee ETF (COFF) which is building a nice base at the moment around the $3.15-$3.20 area.



Best Wishes



Sunday, 27 April 2008

Using Currency ETFs and ETNs to reduce Currency Risk And Investing in Indian Rupee and Chinese Yuan

For a while there have been a substantial number of ETF's that track the major currencies around the world. These give investors the opportunity to be able to position themselves based on Global Macro Economic views.Over the past few years you would have dine very well being invested in the higher yielding "Commodity  based Currencies such as the Australian Dollar.

What Are They?

  • Currency ETFs (exchange-traded funds) track a singe foreign currency or basket of currencies by using foreign cash deposits or futures contracts. For the ETFs that use futures, excess cash is usually invested in high quality bonds, typically US Treasury bonds. The management fee is deducted from the interest earned on the bonds.

  • Currency ETNs (exchange traded notes) are non-interest paying debt instruments whose price fluctuates (by contractual commitment) with an underlying currency exchange rate. Because they are debt obligations, ETNs are subject to the solvency of the issuer.

It is also a useful way to hedge a portfolio if you are heavily invested in a currency that is not your home currency. It means you can reduce the currency based risk when you repatriate your funds back to your home bank account.

Over the past few years I have suffered as a UK investor with a substantial number of positions in the US dollar. To my knowledge there are no US brokers that will allow  you to hold your funds in any other currency beside US dollars.That is not too major an issue if you are a US investor or plan to retire there or make any major purchases in US dollars.

However if you are based outside the US then it can turn a good portfolio performance in to a poor one or even a loss when you try to bring your funds back to your own Country.

Using Currency ETF's can help manage this risk-in the last little while there has been an increasing number of these ETF's launched and I have listed them below

Australian Dollar
CurrencyShares Australian Dollar Trust (FXA)
ELEMENTS Australian Dollar (ADE)

British Pound
CurrencyShares British Pound Sterling Trust (FXB)
ELEMENTS British Pound (EGB)
iPath GBP/USD Exchange Rate ETN (GBB)

Canadian Dollar
CurrencyShares Canadian Dollar Trust (FXC)
ELEMENTS Canadian Dollar (CUD)

Chinese Renminbi
Market Vectors - Chinese Renminbi/USD ETN (CNY)

CurrencyShares Euro Trust (FXE)
iPath EUR/USD Exchange Rate ETN (ERO)

Indian Rupee
Market Vectors - Indian Rupee/USD ETN (INR)

Japanese Yen
CurrencyShares Japanese Yen Trust (FXY)
iPath JPY/USD Exchange Rate ETN (JYN)

Mexican Peso
CurrencyShares Mexican Peso Trust (FXM)

Swedish Krona
CurrencyShares Swedish Krona Trust (FXS)

Swiss Franc
CurrencyShares Swiss Franc Trust (FXF)
ELEMENTS Swiss Franc (SZE)

Recently there have been two new exotic additions to the Currency ETF/ETN portfolio's namely an ETN that tracks the Indian Rupee and and ETN that tracks the Chinese Yuan.

Since it is not easy to directly invest in either of those currencies then the ETN may be a good way to go if you wish to get in  early particularly on the Chinese Yuan which most people are thinking about going long on with the expectations of the continued revaluation against the US Dollar in the years to come.


Best Wishes



Friday, 25 April 2008

Scotland's Oil-Are we going back to the 1970's ?

Some of you may know that I am Scottish and still live in Scotland which is why today's post is of particular interest and relevance to me. It is not often that Scotland gets a mention in terms of the Global Economy but today we have been all over the news.

Higher Level Map of Grangemouth

The reason for this is that  oil workers at the Grangemouth oil refinery in Scotland Grangemouth Oil Refinery are going on a two day strike starting on Sunday. The dispute is not about pay so much as pensions. The Wall Street Journal reports

It reminds me of when I was much younger and the last time that Labour was in power in the UK-we had the so called "Winter of Discontent" and the Miners and Dustbin Men Strikes.

“It was the decade of strikes, electricity shortages and piles of rotting rubbish on the street,” recalls a BBC report.


I was fairly young at the time but I can remember fairly frequent power cuts and problems getting coal for the fire we used to heat my parents Central heating System.It was also the time when arguably one of the UK's most militant Union LeadersArthur Scargill Arthur Scargill head of the National Union of Mineworkers came to prominence.

Then in ‘73 the oil crisis broke. Arab OPEC members were outraged at the West’s support for Israel in the Yom Kippur war . They ceased  shipments of oil to the US and Western Europe. At the same time all of OPEC decided to increase its prices following earlier failed negotiations with the “seven sisters” – the seven biggest Western oil companies at the time.

The result of this action was a damaging blow to the heart of the oil-dependent industrialised world. The price of crude went up fourfold (to $12!) and sent Britain’s already troubled economy into a tailspin. Growth stalled and inflation rose from 5% in 1970 to a high of almost  27%  by August 1975. From a low of 5% in 1971, interest rates soon rose into double digits and hit 15% by 1976.

It is spookily similar to what we are seeing today history may not exactly repeat itself, but  today oil’s and food prices have been shooting up and workers  industrial action is once again making the news.


The question I guess is why is some relatively small refinery in Scotland making the news anyway? Well it is the receiving end of the major artery in the North Sea oil pipeline network. An artery that stretches from Grangemouth, south of Edinburgh, at one end to the Forties oil field over 200 miles away out in the North Sea at the other.


This pipeline transports crude from around 70 oil fields in the North Sea, amounting to over 40% of the UK’s entire crude production . It means BP -(BP-LSE) may have to close the pipe, with costing approx £50m per day ,the strike may only be for two days but it will take a week to boot up the refinery again afterwards.

Brent Bravo Platform

So after more than three decades, with another Labour Government in power oil prices are high, food prices are going up and now, strikes are back. In the ‘70s the food/fuel double whammy led to stagflation . Deflation in the housing market forces consumers to tighten their belts and their resultant lower spending crimps growth.

So not only does it look like the UK is heading down the path of the US but the Global oil situation that I discussed in an earlier post this week- Has Oil Peaked ? is of severe enough dimensions that a 2 day strike in a refinery in the East Coast of Scotland merits Global headlines on the likes of Bloomberg- U.K. Braces for Fuel Cuts and CNBC Pipeline Strike

Break out the Candles-there may be trouble ahead !!


Best Wishes



Brazil's Booming Economy Drawing More Investors - Markets * US * News * Story -


Interestingly after my post earlier this week (Investing in Brazil) this appeared on CNBC yesterday-just goes to show reading this blog keeps you ahead of the Crowd :-)



Brazil's Booming Economy Drawing More Investors - Markets * US * News * Story -


It further reinforces my view that Brazil is a worthwhile longer term opportunity to consider for your portfolio.


Best Wishes




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Thursday, 24 April 2008

Has Oil Peaked ?

A lot of you will be familiar with the Peak Oil theory -for those who are not then you can read more about it here-Peak Oil. Oil reached more or less $120 a barrel recently but today backed off and was at one point down $4.

A recent Reuters report quoting Saudi's King Abdullah did not seem to be reported much but could have big implications for the Peak Oil story and Oil prices in general it said:

Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations?

"When there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said?

Saudi production capacity stands at around 11.3 million bpd, and is scheduled to rise to 12.5 million bpd next year

Al-Shaybah oil Field-SE Saudi Arabia

Al-Shaybah oil field, southeastern Saudi Arabia






If , as you could interpret by these comments there may be a reduction in available oil to the world from the Saudi's in years to come then this could have major global macro economic ramifications.

Currently the US relies heavily on Middle Eastern Oil and this has been reasoned as one of the major drivers of the conflicts in that area, namely control of Oil supplies or at least ensuring they do not fall into the hands of states that the US may find difficulty dealing with.

Whatever the reasons for any conflicts ion the Middle East it has been well documented that the US is keen to reduce its reliance on Oil from the Gulf.So where can it go to get alternative supplies?

We are all aware of the claims being made on the Arctic and Antarctic driven a lot by the belief of huge reserves in these areas, Alaska is another area where there is the potential for some large finds.Politically though these areas are going to come up against a  lot of resistance from the Conservationist lobby's and there could easily be a  lot of the NIMBY (not in my backyard) fraternity unhappy as well.

A less problematic solution particularly with the price of Oil at  $115-$120 a barrel is the Tar Sands of Canada.


The most talked about of these is  in the country's Alberta region.Over the past few years, companies like Suncor, Canadian Oil Sands Trust, and Western Oil Sands have all shot up more than 1,000% by literally extracting valuable crude oil from the province's sandy Northern terrain.Alberta was the first province to set up a regulatory framework and workforce infrastructure. Today, nearly two-dozen companies have a stake in Alberta's oil sands.

However there's a region of Canada that geologists believe holds even richer oil deposits than Alberta.


In fact, it's the province right next to Alberta... Saskatchewan.

  • The Saskatoon StarPhoenix reports, the "Saskatchewan side of the oil sands formation could lead to a long-term economic bonanza for this Province."
  • The National Post writes, the "bitumen find in Saskatchewan could spawn a new industry."
  • The Regina Leader-Post writes, "Although the Alberta oil sands tend to get most of the publicity, the oil sands in Saskatchewan contain ‘significant world class deposits' that are of ‘top quality.'"

How much oil is in Saskatchewan?

Preliminary estimates are 60 BILLION barrels of oil.

Thing is, less than 5% of Saskatchewan's oil property has been fully explored!  So there could potentially be even more undiscovered oil!

For  more than 40 years Saskatchewan has sat idle—untapped—chock-full of rich oil sands because the Saskatchewan government  had refused the necessary permits to allow exploration

Recently the Saskatchewan government finally granted access to this region.Without a doubt the Canadian Oil Sands would solve a lot of the issues facing the US

Canada is sitting on a huge oil reserve with a "no risk" transport route to the world's largest consumer. Currently with Oil priced as it is then extraction is a worthwhile exercise compared to when Oil was at $50 a barrel.

I believe that in years to come the Canadian Tar sands will become a key plank of the US strategy for reducing its reliance on the Gulf for its Oil. This can only bode well for the companies that are involved such as :


Western Oil Sands
Canadian Oil Sands Trust
Nexen Inc.    
Imperial Oil


I would look for some pullbacks on some of these companies and start tucking away small amounts at a time when the price has dropped back.I believe that companies such as these will continue to grow at the rates that they have done in the last 5-10 years.


Best Wishes



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Wednesday, 23 April 2008

Investing in Emerging Markets using ETF's


Continuing on my recent themes of investing in emerging Markets, it may be worth looking at the Deutsche Bank x-trackers these will give you exposure to numerous emerging markets including India, Vietnam, Korea, Taiwan, Brazil and Russia.

You can find details at



Best Wishes



Tuesday, 22 April 2008

Investing in Brazil


A few Years ago Morgan Stanley came up with the original idea that four big countries – Brazil, Russia, India and China – would together soon become so important in the world economy that they could be viewed as a single group, much as we think of Europe or Latin America.

They dubbed the group BRIC, after the first letters of their names, saying that their combined economies, from being just 15 per cent the size of the world’s six most advanced countries’ – including the US and Japan -- would grow to become even larger than them in combination in fewer than 40 years.

There has been a lot of focus on India and China and I have written about these countries in past articles Broken China ??   &  Investing in India The challenge with both these countries is that they do seem to still be linked to the fortunes of Wall Street and have suffered along with the US Markets

Brazil and Russia, by contrast, are among the handful of countries best situated to supply those increasingly valuable natural resources and so are fairing a lot better and seem less exposed to the US story and more exposed to the Commodities and Energy story that is doing well in the face of the US recession.

Russia is a huge exporter of oil and natural gas, nickel and platinum group metals. Brazil is the world’s biggest supplier of internationally-traded agricultural products such as sugar, soybeans, coffee, corn, orange juice, beef and poultry.


Both still have enormous resources that can be developed to meet Asia’s growing demands.


No shortages of energy, food or water

Last year Brazil’s main stockmarket index rose 71 per cent in US dollar terms, or even faster than India’s, suggesting that international investors are awakening to the potential of the South American giant.

Much of that interest was focused on Brazil’s two biggest stocks – Vale (NYSE:RIO) and Petrobras (NYSE:PZE). Vale is the world’s biggest exporter of iron ore; Petrobras has just made the world’s second-largest oil/gas discovery in 20 years, deep beneath Atlantic waters.

But it’s renewable resources, rather than minerals, that are increasingly attracting investor interest.

The well-known British investor, Jim Slater, says Brazil is “insulated against the world’s main shortages – fresh water, agricultural commodities and energy.”

It contains nearly a fifth of the world’s fresh water, available to expand agricultural production and carbon-free electricity generation. Hydro-power already provides 80 per cent of Brazil’s electricity needs, and two big new dams are being built on the Amazon at a cost of $10 billion.

Because it can produce alcohol fuel from sugarcane, without subsidies, for prices competitive with petrol, Brazil has been dubbed “the Saudi-Arabia of ethanol.”

David Fuller, the London-based analyst, says: “No country is better positioned to benefit from the agricultural boom than Brazil, with its large and fertile land mass, absence of any desertification, and ample supply of fresh water.”

Other commentators point to the nation’s economic growth rate (around 5 per cent a year), a foreign trade surplus (running at about $40 billion a year), large foreign reserves, a strong currency and a buoyant stock market.

Last year Brazil attracted FDI (foreign direct investment in factories and business operations) of $37 billion, or twice as much as India. It was the world’s third biggest raiser of investment capital via equity issues after the US and China. And its international bonds are expected to be granted investment-grade status within two years.

Brazil has a flourishing middle class of 20 million – depending how you define “middle class,” five times larger than India’s – as well as political stability, a favourable environment for foreign investment, and strong job creation (5 million new jobs since 2000).

Years of favourable international environment, combined with good policies such as more disciplined public finances and trade liberalization, have delivered low inflation and falling interest rates. One result is the emergence from poverty of a new lower-middle class, so the nation’s notorious income inequality has been declining.

Sensitive to foreign capital flows

What are the negatives?

The public sector is bloated and corrupt, packed with time-servers with jobs for life and fat pensions to look forward to. Taxes to pay for it gobble up more than a third of national output – a proportion much higher than in other emerging markets and out of proportion to the low quality of services provided.

As is commonplace in countries where planning, building and operating infrastructure is almost entirely in the hands of bureaucrats, Brazil has some serious infrastructural problems, including power-supply shortages. The regulatory environment is not sufficiently clear to attract private investment.

Labour laws are highly restrictive, with welfare and other compulsory contributions adding 60 to 100 per cent to employers’ payrolls.

The stockmarket is very sensitive to flows of foreign capital, therefore exposed to adverse money shifts that may be triggered by developments unconnected with conditions in Brazil itself, such as the US sub-prime crisis.

Finally, remember that although Goldman Sachs’ BRIC study projected good per capita growth rates for the Brazilian economy over the coming decades, it suggested the three other nations in the group would grow even faster.

If you are interested in adding Brazil to your international portfolio to provide balance, the best way to do so is probably via one of the exchange traded funds listed in London or New York. There is an iShares MSCI Brazil Fund in London which I would favour as it is priced in Sterling and not Dollars or there  is the Brazil Fund (BZF) that trades in new York if you are looking for a dollar denominated fund.


               Best wishes



Monday, 7 April 2008

How to Invest in Russia-What to Buy

Yesterday I looked at the story behind Russia and outlined some of the positives and negatives for investing there.From Russia with Love ? Today I am going to look at some of the ways you can invest in Russia if you feel positive about the potential in that emerging market.

Since we discussed the story behind Natural Gas then the most obvious play is Gazprom (LSE : OGZD). Its former chairman is now the Russian president you do the math re the environment for Gazprom going forward !! There have also been recent increases in Domestic gas prices in Russia which are going to be of benefit. I also mentioned the deal that Vladimir Putin had struck with companies in the Caspian Sea area and Gazprom will also be a beneficiary of that.


The increased need to get more out of the worlds agricultural supplies is having a big impact on fertiliser companies-just look at Mosaic  (MOS) over the last few days. Russia's answer to Mosaic is Uralkali (LSE: URKA) and it should do well over demand from China for fertilisers in the medium term.

The need to improve the railways will also impact positively on Evraz Group (LSE: EVR).

If you are uncomfortable picking individual stocks then Lyxor have a Russia ETF (LRUS) which will give broad exposure to the Russian Titans 10 index.



In my next post I will look at Brazil and the opportunities that may be there for investors looking to invest in South America and its economies.



Best Wishes





Sunday, 6 April 2008

Investing in Emerging Markets-From Russia with Love ?

Vladimir Putin has taken leave of office and is being "replaced" by Dmitry Medvedev.Despite what some may think in the West ,Putin is extremely popular in Russia.During his premiership Russia has had a remarkable economic transformation . Since the early nineties the Russian Economy has been growing at a remarkable rate of 8% per annum.


Most of this growth has been down to the massive reserves of Natural resources that it can draw on particularly Oil, Gas and Precious Metals.The demand for these Natural resources from the emerging countries such as China and India has fuelled a boom that has seen a thriving middle class developing in Russia.

Like all middle classes these Russians are splashing out on cars, holidays and electronic goods. There is no doubt that some people may have concerns about investing in Russia, we can all remember when the Russian government was seizing power of Yukos and we were hearing stories of the "Red Mafia" running wild.However those who have invested in Russia in the past few years have seen some serious returns.

Russia is amongst the cheapest of the emerging market economies, it has huge resources of natural commodities that the world is crying out for and importantly at the moment has little or no exposure to the credit crisis that is impacting on a number of the rest of the worlds major economies. Some people may not like Vladimir Putin but you cannot fault what he has achieved in the economy.


The Case for Investing

The case for investing in Russia is based mainly on energy.It has vast oil reserves in its Western States and a third of the Worlds gas reserves sit in Siberia, this makes Russia  by far the worlds biggest gas exporter and producer. On top of this its neighbours have an increasing reliance on buying from Russia. Over 20% of the EU's natural gas comes from Russia.


The current record prices for oil means that the Kremlin is generating a fortune  in taxes that it has levied on the oil producers. It is estimated that Russia takes in over 80% of every dollar that the price of oil increases at the current levels.Learning from the past where they squandered the wealth that these Natural Resources generated Russia has created its own Sovereign Wealth Fund which is known as the Stabilisation Fund.The current estimates are that this fund has something in the region of $150bn.Russia also must be the  envy of many economists and politicians in the west in that it is estimated to have a budget surplus of 5-6% of GDP.


Downside Risks

As with all things where there is the potential of high reward there is attached risk, there is no doubt that there are risks associated with investing in Russia.State ownership has always meant that investment levels tend to lag behind what you would expect from private ownership.This is certainly the case in Russia, the limited investment in the Siberian Oil fields has seen an impact over the years in the levels of production growth.In the late 90's estimates were that production growth was around 10% per annum, the estimates now are that this has dropped to around 1%.

The picture with gas however is more rosy the Kremlin has been very active encouraging     ( some would say bullying) big Gas companies such as BP into investing in infrastructure in Central Asia.Putin has also got agreement from countries in the Caspian Region which allow Russia to get access to the reserves in the area for a fraction of what they are worth to the West so when selling these on to countries in the EU Russia is guaranteed a tidy mark-up.

One of the other potential downsides for to consider for the future  is infrastructure, since the collapse of the Soviet Union there has been  a major decline in the maintenance of Russia infrastructure, transport networks are very underdeveloped and this will have an impact on its competitiveness if plans are not soon put in place to invest in the road and rail network aimages well as the oil and gas pipelines.

The Russian government has recognised this and plans to throw around $1trn at the problem. The Kremlin has committed around $200bn with the rest coming from the private sector.




What to Buy ?

In my next post I will look at some of the ways and companies that could do well on the back of the continued boom in Russia .



Best Wishes