Discovering the pleasure of dividends in Russia
American financier J.D. Rockefeller said watching dividends rolling in was the only thing that gave him pleasure. But it is a pleasure which until now has largely bypassed shareholders in most big Russian companies. That might be about to change.
Russian firms, especially the big commodity producers, are generally seen as poor dividend payers. So dividend yields, the ratio of dividends to the share price, have been unattractive.
On a trailing 5-year period, the average dividend yield in Russia was 1.8 percent compared to 2.5 percent for emerging markets, notes Soren Beck-Petersen, investment director for emerging markets at HSBC Global Asset Management. That absence of positive cash flow from companies is one reason why Russia has always traded so cheap relative to other emerging markets, he says.
See the following graphics from my colleague Scott Barber (@scottybarber)
But as the graph above shows, the ratio has been improving. Beck-Petersen says it stands now at 2.1 percent for Russia versus 2.7 for emerging markets. Smaller oil companies Bashneft and Surgut pay double-digit dividend yields on their preferred shares. Steelmakers Evraz and Mechel gladdened shareholders last year with decent dividends.
How socially responsible is your investing?
Is your investment ethically sound and socially responsible?
A new survey by consulting firm Mercer finds that only 9% of more than 5,000 investment strategies achieve the highest environmental, social and governance (ESG) ratings.
Socially responsible investing (SRI) involves buying shares in companies that manage ESG risks. For example, firms that make clean technologies are favoured, while businesses which pollute the environment, are complicit in human rights abuses or nuclear arms production are shunned. All this sounds good, but the performance of such investments has been somewhat mixed — meaning being good doesn’t always mean doing well. But the SRI industry is hoping that greater involvement of funds, especially long-term ones such as pension funds and sovereign wealth funds — may generate flows into the sector and lead to better performance.
Of the 5,175 strategies assigned ESG ratings, 57% are in listed equities, 20% fixed income and the remaining 23% across real estate, private equity, hedge funds and others.
Private equity has the highest proportion of highly rated ESG strategies, while hedge funds and fixed income had the fewest. From a geographic perspective, emerging markets and Asia-Pacific have the highest proportion of top ratings, while Canada — and this may come as a surprise to some — has the least.
from MacroScope:
New twist in Hungary’s Swiss debt saga. Banks beware.
A fresh twist in Hungary's Swiss franc debt saga. The ruling party, Fidesz, is proposing to offer mortgage holders the opportunity to repay their franc-denominated loans in one fell swoop at an exchange rate to be fixed well below the market rate. This is a deviation from the existing plan, agreed in June, which allows households to repay mortgage installments at a fixed rate of 180 forints per Swiss franc (well below the current 230 rate). Households would repay the difference, with interest, after 2015.
If this step is implemented and many loan holders take up the offer, it would be terrible news for Hungary's banks. The biggest local lender OTP could face a loss of $2 billion forints, analysts at Budapest-based brokerage Equilor calculate. Not surprisingly, OTP shares plunged 10 percent on Friday after the news, forcing regulators to suspend trade in the stock. Shares in another bank FHB are down 8 percent.
But Fidesz' message is unequivocal. "The financial consequences should be borne by the banks," Janos Lazar, the Fidesz official behind the plan says. The government is to debate the proposal on Sunday.
OTP and its peers could be forgiven for feeling aggrieved. They are already saddled with the highest financial sector taxes in Europe and will almost certainly see a rise in bad loans as the economy stagnates and more Hungarians lose their jobs. They are also picking up the cost of the three-year exchange rate cap for mortgage holders.
The proposed plan may also have implications for the forint -- ING Bank chief EMEA economist Simon Quijano-Evans notes that if 200,000 to 300,00 people to take up the new offer -- as the government apparently expects -- the forint will weaken as these people buy Swiss francs to repay their debts. Based on average loan size, over 2 billion euros worth of forints could be sold, he estimates.
Banks' main hope now must be the central bank. The latter has responded to today's proposal with a warning that solutions to the debt crisis must not threaten the financial system's stability.
But the Fidesz government's capacity to spring nasty surprises on the banking sector will make investors even more defensive about Hungary. Quijano-Evans for one advises staying away from Hungarian equities and unhedged forint positions, noting that "the risk of the government going ahead with some sort of plan to the detriment of banks has increased strongly."
London taking AIM at smaller companies
As investors in London’s junior AIM market know only too well, high risk does not always mean high return. Now, more than ever, the Alternative Investment Market of the London Stock Exchange needs to prove that it can offer investors high-quality companies.******The FTSE Small Cap index of smaller companies listed on the main London market has outperformed the AIM 100 index on the way down, and on the way back up. The FTSE Small Cap has gained almost 30 percent over the last couple of months, while the AIM 100 has risen 20 percent.******And that’s after the AIM 100 saw falls of over 50 percent in the past year, much more than the 27 percent posted by the FTSE Small Cap index.******While liquid companies like Advanced Medical Solutions and Cape typify the benefits of AIM, there are too many that have cut back so much that they are reduced to a CEO operating alone out of his spare bedroom.******AIM officials said on Friday that they thought the market has had its best month for a year, raising around 500 million pounds for companies, but this includes 220 million pounds raised by one company alone, Max Properties.******Fund managers say that they like some AIM companies that are making profits, or close to that point. However high-risk beta stocks that expect investors to hang around for five years or more should be happy that the winter weather has cleared, because they’re likely to spend most of their time with their caps in their hands.******If AIM wants to see its companies grow fruitfully as cash returns to the market, it will have to start out by sifting the chaff from the wheat.
Some shock, horror numbers from global stocks
Some mind-boggling numbers from the MSCI all-country world stock index, which is one of the broadest measures of how equity markets are doing and is a benchmark for many institutional investors. The index has some 2,500 companies in it from 48 developed and emerging economies.
First off, it has lost around $15 trillion in value since the end of October last year (graph below). That is more than 21 times the $700 billion U.S. bank rescue plan. It also more than the annual gross domestic product of the United States. It is more than three time Japan’s annual output and more than four times that of Germany.
Secondly, the speed with which this fall has taken place has been breathtaking by investment standards. It took companies that make up the index about four years to gain the $15 trillion in share value before hitting an all-time peak last November. About a third of the losses since hitting that peak came in a free fall from mid-September to mid-October this year.
So are there any positive numbers to play with? It is small beer, but the index did rise 3.6 percent last week, its largest gain since April and second largest since August 2007. It was also up on Monday, at least at the time that this was posted. A week is a long time in financial markets as well as politics, but if the index manages to end this week in the black as well, it will be the first time since spring that it has had back-to-back positive weeks. Great oaks out of little acorns grow — even if the forest has been burned to the ground.
