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from Global Investing:

Three snapshots for Wednesday

On Friday 283 companies in the S&P 500 had a dividend yield higher than the 10-year Treasury yield, at yesterday's close this had fallen to 266 but remains very high compared to the last 5-years.

Italian consumer morale plunged to its lowest level on record in May as Italians' pessimism over the state of the economy plumbed new depths.

Germany set a zero coupon on its new Schatz, the first time it has done so on debt of such maturity. The bid to cover ratio for the new bond at the auction was 1.7, compared with 1.8 at a sale of two-year debt on April 18.

The average yield at the sale was 0.07 percent.

from Global Investing:

Three snapshots for Thursday

Fears that Athens is on the brink of crashing out of the euro zone and igniting a renewed financial crisis have rattled global markets and alarmed world leaders, with Greece set to figure high on the agenda at a G8 summit later this week. This chart shows the impact on assets since the Greek election:

Euro zone banks now account for only 8% of total euro zone market value - they were over over 20% of the market in 2007:

Japan's economy rebounded in January-March from a lull in the previous quarter, shaking off the pain of a strong yen and Europe's debt crisis on solid consumer spending and rebuilding from last year's earthquake.

from Breakingviews:

Samsung investors should worry less about Apple

By Wayne Arnold

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Samsung investors are worrying too much about Apple. The company’s shares have slid on concern the iPhone’s maker might be buying Japanese memory chips to cut its dependence for parts on its South Korean rival. But Apple’s diversification only reflects how smartphone demand is outpacing parts supply. Apple still needs Samsung and Samsung’s valuation has fallen too far.

The gadget-maker’s shares fell 6 percent on May 16 on reports from Taiwan that Apple was putting in big orders for memory chips with Japan’s Elpida Memory. Apple might like to diversify: Samsung is not only a major supplier of parts, but its biggest rival. Samsung toppled Apple in the first quarter as the world’s most popular smartphone maker, according to research firm Gartner. Because Apple is Samsung’s biggest single customer, investors worry a shift by Apple will hurt Samsung’s 45.3 trillion won in quarterly revenue.

They can relax: sales of memory to Apple account for less than 1 percent of Samsung’s overall sales, according to Citigroup. Samsung makes more selling it logic chips and screens, but even those add up to only about 5 percent of total sales. Samsung’s parts by contrast make up an estimated 25 percent of the iPhone. Apple’s Elpida purchases most likely result from a shortage of supplies as it ramps up production of the iPhone 5. Samsung can’t easily dedicate more capacity to its U.S. rival.

The launch of the new iPhone in June may be a bigger worry for Samsung, particularly amid slowing growth in China. But global smartphone sales still grew by roughly 45 percent in the first quarter, with Samsung’s mobile sales soaring by 86 percent thanks to the popularity of its larger, 5.3-inch, Galaxy Note phone-tablet. Apple is following suit by swapping the iPhone’s 3.5-inch screen for larger 4-inch LCDs in the iPhone 5.

Investors are discounting Samsung too much. The company’s should grow by 62 percent in 2012, according to consensus forecasts, yet after this week’s decline, the shares trade at just 8.2 times projected 2012 earnings. That’s below Apple, and other peers like LG Electronics and SK Hynix. Investors should have more faith.

from Breakingviews:

Tempting mining valuations aren’t hard to resist

By Kevin Allison

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It’s easy to see the temptation to pile into mining industry bellwethers BHP Billiton and Rio Tinto after the sector’s recent pummelling. The miners’ valuations looked depressed even before the market’s recent Greece-related sell-off. After a near-15 percent slide since May 1, the companies’ shares are trading close to forward enterprise multiples last seen during the dark days of 2008-2009. But any rally could be a way off.

Valuations may be flagging, but they’re still double the lows they hit after Lehman went down. And even if Europe manages to muddle through, miners have plenty else to worry about. BHP chairman Jacques Nasser on May 16 became the latest top mining executive to sound a cautious note on demand for raw materials. China’s April trade figures showed sputtering demand for iron ore, steel and copper. Add worries about the staying power of the decade-long commodities “super-cycle” to the sector’s rampant cost inflation, and red-hot margins - running at close to 50 percent for some miners last year - look vulnerable.

Worried that miners might destroy value if they press on with some of their more ambitious growth projects, analysts have been calling for more share buybacks. But investors hoping for a payout bonanza shouldn’t hold their breath. Rio last week brushed off calls to return more cash; BHP has said it will “sequence” new investments to match cash flows.

It would take a deeper, more sustained fall in commodity prices to convince Rio and BHP to abandon an estimated $50 billion worth of new projects expected to be approved over the next nine months, say analysts at Credit Suisse. The likelihood is that BHP and Rio will still spend a combined $27 billion on growth projects this year, more than half of their forecast 2012 operating cash flow.

Management may be right to take the long view. But that may not sit well with shareholders who want jam today. Low valuations may endure for a while yet.

from Breakingviews:

Emerging markets hit by double troubles

By Robert Cole and Jeff Glekin

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Emerging-market investors seem to get hit by trouble near and far. They suffer when euro zone troubles erode investment confidence generally. But they also have their own particular concerns about a slowing China and an intensification of resource nationalism.

The outperformance of emerging market equities can no longer be taken for granted. Over the last three years, they have lagged developed brethren by about 8 percent. Total returns were only just positive, while developed-market stocks were up a little over 10 percent.

Slow or no-growth European economies reduce demand for emerging-market exports. If Europe’s currency breaks and its banks get crunched, demand for goods and services is almost certain to fall. Thanks to the hard-wired interconnectivity, financial stocks could be hit more directly. And financials make up a greater proportion of market values in the emerging market indexes - 24 percent versus developed markets’ 18 percent.

Now factor in conventional emerging-market worries - breakneck growth ending in a hard landing, and unpredictable governments. China is slowing, resource nationalism has flared up in Argentina. There’s even an acceptance that demand for mineral wealth won’t increase forever. Comments on May 16 from Jacques Nasser, chairman BHP Billiton, the world’s biggest miner, crystallise such fears.

India’s rupee is at an all-time low. Imports have jumped by 38 percent year on-year, driven by the higher cost of oil. There’s still no sign of a competitive exports sector beyond IT outsourcing. The current account deficit is at its highest since 1980, when the International Monetary Fund starting collecting data.

from Global Investing:

Three snapshots for Tuesday

The euro zone just avoided recession in the first quarter of 2012 but the region's debt crisis sapped the life out of the French and Italian economies and widened a split with paymaster Germany.

Click here for an interactive map showing which European Union countries are in recession.

The technology sector has been leading the way in the S&P 500 in performance terms so far this year with energy stocks at the bottom of the list. Since the start of this quarter financials have seen the largest reverse in performance.

from Breakingviews:

Euro stocks discount lion’s share of new fear

By Robert Cole

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It’s hard to be bullish about European equities. The economies look weak both inside and outside the euro zone and the single currency’s crisis only seems to get worse. But the share prices may be discounting even more bad news.

The STOXX 50 index of leading euro zone shares has lost all the tentative gains made in the first part of this year and is standing at not much more than half the level of five years ago. The total return since then, including reinvested dividends, is a depressingly high loss of 35 percent. In the United States, the total return of the S&P 500 over the same period is slightly positive.

Some underperformance is justified by Europe’s weaker economic performance and by the euro zone’s problems. The relative weakness on the eastern side of the Atlantic is reflected in earnings expectations for 2012. Thomson Reuters data indicate a 5 percent gain in the euro zone and 10 percent in the United States. The most recent economic news suggests the gap could widen.

But European share prices may reflect too much pessimism. European equities have usually been cheap by American standards; right now the discount of forward earnings multiple is above the post-1987 average. And not only is the 9.5 price-earnings ratio one-quarter less than the equivalent U.S. figure, it appears to discount no earnings growth at all in the next five years and no increase in valuation.

There could be big rewards for those brave enough to buy. If euro stocks’ earnings rise at half the post-2005 annual rate of 10 percent over the next five years and p/e ratios move only halfway back to the long term norm, then investors will earn inflation-adjusted annual returns of 11.6 percent.

from Global Investing:

Three snapshots for Wednesday

This chart shows the wide dispersion in equity market performance so far this year. In local currency terms Korea has a total return of nearly 12% and Germany over 10%, this compares to Italy at-6% and Spain at -16%.

In contrast to last year, this has driven average correlations between equity markets lower.

However, correlations may well pick up if markets move back into 'risk-off' mode. The chart below showing the weakness in the Citigroup G10 economic surprise indicator seems to be pointing towards further weakness in bonds relative to equities.

from Global Investing:

In India, no longer just who you know

It's not what you know but who you know. There are few places where this tenet applies more than in India but of late being close to the powers in New Delhi does not seem to be paying off for many company bosses.

Look at this chart from specialist India-focused investor Ocean Dial. It shows that since mid-2011 companies perceived as politically well-connected have significantly underperformed the broader Mumbai index. The underperformance has intensified this year.

According to David Cornell, portfolio manager at the fund, this is down to several factors such as The Right to Information Act which has helped curb unfettered corruption as well as shifting political power away from the centre towards provincial governments.  He says:

Political connections at a corporate level are no longer a pre-requisite for stocks to perform. Stay away from areas of the economy that rely on government patronage such as real estate, mining and power.

On Friday, media reported that Reliance, a giant company once seen by many as exemplifying India's politics-business nexus, would not be allowed to recover $1.2 billion costs before starting to share gas production profits with the government.  Reliance shares slumped 1.7 percent after the report. This year they have risen just 4 percent, less than half the gains of the Mumbai index.

from Breakingviews:

China’s stock reforms should benefit brokers most

By Wei Gu

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

China’s stock market is reforming fast, but investors hoping for higher stock prices may be disappointed. New chief securities regulator Guo Shuqing took office just half a year ago, but has already brought in a slew of new rules. The latest is to lower trading fees. The aim may be to pep up valuations across the market, but the biggest beneficiaries are likely to be China’s brokerage firms.

Chinese stocks need a boost of some sort. They trade at a discount to Asian peers, and the lowest multiple of forward earnings since late 2008. But investors are still staying on the sidelines. Bank deposits in China are equal to 3.6 times the country’s market capitalisation, according to Citi, far higher than other Asian countries. Earnings growth has disappointed as the economy slows, but new supply of stock keeps coming. Accounting and insider trading scandals have further eroded faith in the market.

The new rules are supposed to make investors feel safer. The China Securities Regulatory Commission has called for more comprehensive dividend policies, broadened delisting regulations, and disclosed previously secret approval procedures for new stocks. But enforcement is still weak. The power to delist companies is rarely used. Vested interests, such as local governments who may own stakes in listed companies, are strong.

In the short term, it’s China’s struggling brokerages who will benefit. That industry’s total profits fell 49 percent in 2011, hit by declining trading volumes and lower underwriting revenues, according to the China Securities Association. The CSRC promised to allow more derivative products, build an over-the-counter market for high-tech stocks, and cut the transaction fees collected by the exchanges. For companies like Citic Securities, and newly Hong Kong-listed Haitong, those measures should help drive up trading volumes, bring new businesses for brokerages, and lower their costs.

Chinese securities firms may have started to turn the corner. First-quarter profit was already an improvement on the previous three months, and the more reform the regulator brings in, the faster that trend should run. But when it comes to valuations in the market overall, there’s no quick fix.