It’s Blue Skies for the 5 Largest Emerging Market Aluminum Producers as China Cuts Output

Blue skies for aluminum producers

In line with its blue skies program, China (FXI) passed an “Air Pollution Control” regulation earlier this year which required aluminum producers in the four provinces around Beijing to cut aluminum output. The move is targeted towards reducing pollution and stabilizing the market. Smelters and aluminum refineries were mandated to implement cuts of at least 30%. Accordingly, the Asian (AAXJ) (VPL) country is estimated to cut around 3-4 million tonnes of aluminum capacity by the end of 2017. Since China is the world leader in aluminum production (chart below), the move is impacting market dynamics and prices for this base metal.

The price of aluminum has been treading north

Meanwhile, the price of aluminum is already treading north (see chart below) and is likely to continue, at least over the medium term.

This is bad news for the automotive sector being that they are one of the key drivers of global aluminum demand. Most equipment manufacturers and auto body producers are located in developed markets (EFA) (VEA). So, while auto parts makers stand to face dark clouds, aluminium producers have blue skies, as they benefit from the rise in the price of their product.

The largest aluminium producers in the emerging markets

Here’s a list of the five largest aluminum producers located in emerging markets (EEM) (VWO):

  1. UC Rusal (Russia)
  2. China Hongqiao Group Ltd. (China)
  3. Aluminium Corp. of China (China)
  4. China Power Investment Corp. (China)
  5. Shandong Xinfa Aluminium & Electricity Group Ltd. (China)

United Company RUSAL (RUSAL.PA), Up 33% YTD

The world’s largest primary aluminum producer based out of Russia (RSX), UC Rusal, produced a total of 3.7 million tonnes of aluminum in 2016. The company was formed by the merger of RUSAL, SUAL, and the alumina assets of Glencore (GLNCY) in March 2007. Currently, it accounts for almost 9% of the world’s primary aluminum output and 9% of the world’s alumina production.

The company’s GDR currently trades at the Euronext Paris Exchange under the ticker RUSAL. The GDR is up 33.2% on a YTD basis and commands a market cap over $9 billion (as of November 20). In the FY2016, the company reported an ROA (return on assets) of 8.65% and an EBITDA margin of 19.05%. The company’s revenue sources are spread across Asian and European countries with the Netherlands accounting for 28.6%, followed by Russia at 19.7%. 82.2% of the company’s long-term assets are located in Russia.

China Hongqiao Group Ltd. (1378.HK), Up 39% YTD

The Shandong province-based China Hongqiao Group Ltd. is one of the largest (as of 2016) and lowest-cost aluminum producers in the world with a combined annual capacity of 3.61 million tonnes.

The company’s stock currently trades at the Hong Kong Stock Exchange under the ticker 1378. The stock is up 39.3% on a YTD basis and commands a market cap of about $69 billion (as of November 20). The stock currently trades at a P/E of 11.54. Estimated forward P/E for the stock stands at 8.13. In the FY2016, the company reported an ROA (return on assets) of 3.6% and an EBITDA margin of 30.1%. The company’s revenue sources and long-term assets are concentrated in China. The stock has 50% BUY recommendations and 50% HOLD recommendations from the 6 analysts that reviewed the stock.

Aluminum Corp. of China (ACH) (2600.HK), Up 58% YTD

China’s state-backed producer Aluminum Corporation of China Limited (aka Chalco) used to be the largest refined metal maker in China until China Hongqiao Group overtook it in 2015. Chalco produces about 3.31 million tonnes of aluminum annually.

The NYSE-listed ADR of the company trades under the ticker of ACH and commands a market cap of $12.9 billion. The company’s stock also trades at the Hong Kong Stock Exchange under the ticker 2600. The stock is up 58.44% YTD and commands a market cap of $98.2 billion (as of November 20). The stock currently trades at a P/E of 58.9. Estimated forward P/E for the stock stands at 25.5. In the FY2016, the company reported an ROA (return on assets) of 0.21% and an EBITDA margin of 8.9%. The company’s revenue sources and long-term assets are majorly concentrated in China. The stock has 53.3% BUY recommendations, 33.3% HOLD recommendations, and 13.3% SELL recommendations from the 15 analysts that reviewed the stock.

China Power Investment Corp.

China Power Investment Corporation (CPI) is one of the five largest gencos (generation companies) in China and a comprehensive energy group integrating industries of power, coal, aluminum, railway, and port. The company has an alumina refinery capacity of 2.6 million tonnes. The company’s stock is not listed on any exchange. In July 2015, the company was merged with the State Nuclear Power Technology Corporation (SNPTC) to form State Power Investment Corporation (SPIC).

Shandong Xinfa Aluminium & Electricity Group Ltd.

Shandong Xinfa is another privately held large-scale enterprise group in China. The company has an aluminum production capacity of about 1.63 million tonnes.

While above is a list of the largest aluminum producers based out of the emerging markets, UK’s Rio Tinto (RIO) and US’s Alcoa (AA) count among the notable developed market (EFA) (VEA) based producers of aluminum.

5 Under-The-Radar Emerging Market Tech Stocks Delivering Big Gains

Emerging market tech stocks are raging

Technology stocks have been driving emerging markets indices north. In 2017 to date, the MSCI Emerging Markets index is up 25% — the largest gains in the past six years. On average, tech sector stocks in the emerging markets index have surged 75% in the year so far, outperforming the index three-fold.

The biggest five emerging market companies in the index are tech firms Alibaba (BABA), Tencent (0700.HK), Samsung (005930.KS), Naspers (NPN.JO) and Taiwan Semiconductor (2330.TW). They comprise almost 19% of the MSCI Emerging Markets Index (EEM) in terms of market capitalization.

UBS Strategist Bhanu Baweja states that the IT sector contributed to 47% of the rise in the MSCI Index so far. Of the 830 stocks constituting the MSCI EM Index, 10 stocks have surged 41% year to date. “You don’t see that every year, I’m very certain we haven’t seen that ever,” he mentioned in a note to investors.

Gains in emerging markets have been primarily driven by large bellwether stocks like Samsung, Taiwan Semiconductor Manufacturing, Alibaba, Tencent Holdings and Naspers. In the year so far, shares of these companies have rallied 56%, 47%, 108%, 94% and 73%, and have outperformed the popular FAANG stocks.

Emerging market tech equities are expected to gain further as smartphone demand is rising in these countries.

The tech sector is gaining importance in equity indices as these companies dominate stock trading. In 1995, the tech sector constituted merely 2% of the MSCI Emerging Markets Index, but now have risen to 27%. In the United States, tech stocks make up 24% of the S&P 500 Index (SPY).

John Vail, chief global strategist at Nikko Asset Management Americas who is bullish on Asian tech stocks believes stellar earnings are driving gains in the stocks of these companies. Further, Internet penetration growth in emerging markets is higher than developed markets.

Michael Lippert, portfolio manager of Baron Opportunity Fund, also has big investments in tech stocks and believes “data is the new oil.”

Ben Laidler, a global equity strategist at HSBC , said investing in emerging markets hasn’t changed all that much, even if the type of companies is different.

Chinese tech stocks form the largest chunk of the pie when it comes to emerging markets tech stocks. HSBC estimates China contributes nearly 71% of tech sector revenues in emerging markets, and has been key to growth of the tech sector in these markets.

However, some experts believe the rally in the tech sector is overbought, and a correction is pending. Rob Young, manager of the $65 million ICON Emerging Markets Fund is currently offloading his investments in tech stocks like Alibaba and Tencent. “These stocks are highly sensitive to earnings growth, and if there is any slight deceleration, the stocks get hammered,” he said.

Valuations

The MSCI Emerging Markets Tech index is currently trading at a PE of 21.2x while the MSCI US Tech stocks index trade at PEs of 25.2x. In comparison, the MSCI Emerging Markets Index trades at 15.8 times its past 12 months earnings.

Investors see valuations of tech stocks to be lucrative and see emerging markets stocks as a less expensive way to gain exposure to the high growth tech sector.

Stocks trading lower than their average price-to-earnings multiples or lower than the sector average price-to-earnings multiples attract investor attention because they’re considered cheap. The price-to-earnings multiple compares a stock’s price to its forward earnings per share. If a company trades at a high PE, it means investors are anticipating higher growth in the future.

Vipshop (VIPS), YY Inc (YY), Autohome (ATHM), Naver Corp and Baidu (BIDU) are currently trading at inexpensive valuations compared to their peers. They have one-year forward price-to-earnings multiples of 15.2x, 18x, 30x, 33x, and 34.4x respectively.

Meanwhile,  58.com (WUBA), Kakao Corp and Weibo are currently expensive. They have PE multiples of 388x, 102x and 97x respectively.

Analyst recommendations

Analysts are bullish on the technology sector in emerging markets based on favorable demographics and a growing Internet population. Kristina Hooper, the global market strategist at Invesco, believes emerging-market tech stocks are cheaper compared to their US counterparts and offer higher growth potential.

The table above shows the ratings of some large-cap tech stocks in emerging markets. Analysts are most bullish on big names like Alibaba (BABA), Tencent Holdings, NCSoft, Naver Corp and JD.com.  Alibaba has received 47 buy ratings, and 3 hold ratings, while Tencent Holdings has received 44 buy ratings, and 2 hold ratings. Naver Corp has received 35 buy ratings, and 3 hold ratings. Comparatively, NCSoft and JD.com have received 35 and 33 buy ratings respectively. All these stocks have received no sell ratings.

The Next Ten: Emerging Market Tech Stocks That Could Soon Dominate the MSCI EM Index

Emerging market tech stocks now constitute 28% of the MSCI EM index, higher than the S&P 500 index

Innovation and technological advancement in emerging markets is steadily intriguing more investors. The US stock market benchmark index, the S&P 500 index (SPY) (IWM), has the largest share of its portfolio, with 23.2% (as of Sep 29) invested in information technology stocks (QQQ), followed by financials (XLF) which command 14.6% of the portfolio. The surge in the FANG stocks (FDN) over the past few years is one the primary reasons for the exceptional weighting. However, what usually remains unnoticed here is that the emerging market benchmark, the MSCI emerging markets index (VWO), has allocated an even higher weight to emerging market tech stocks than the S&P 500 index. Information technology stocks now command a 27.6% (as of September 29) of the MSCI emerging markets index portfolio. Furthermore, the iShares MSCI Emerging Markets ETF (EEM), which tracks the index, has 28% of its assets invested in technology stocks.

Will the tortoise win the race?

The behavior of global technology stocks over the past few years reminds us of the popular ‘hare and the tortoise’ fable by Aesop. While US-based tech stocks (XLK), much like the hare, were quick to pick up speed and race ahead, who is to say they may be approaching their resting point. Meanwhile, emerging market-based tech stocks (the tortoise in our analogy) have been slowly but steadily treading their path, unnoticed by many. Valuation data reveals that these emerging stocks are 35% cheaper than their developed market counterparts.

So, while it seems that emerging market tech stocks have established themselves as a point of interest for market participants, which ones merit our attention? The emerging markets index portfolio is currently invested in 844 securities, of which about 233 stocks (27.6%) belong to the information technology sector. So, here is a bird’s eye view of the top 23 (top 10% of the tech stocks) that are now commanding the highest allocation in the emerging market index. 

No. Ticker Top 23 tech stocks in the MSCI emerging markets portfolio Weight

(as of Sep 29)

1 TCEHY, 0700.HK Tencent Holdings Li (CN) 4.24%
2 SSNLF, 005930.KS Samsung Electronics Co 4.18%
3 TSM, 2330.TW Taiwan Semiconductor Mfg 3.63%
4 BABA Alibaba Group Holding ADR 3.01%
5 NPSNY Naspers N 1.95%
6 HNHPF, 2317.TW Hon Hai Precision Industry Co 1.16%
7 BIDU Baidu ADR 1.10%
8 000660.KS SK Hynix 0.63%
9 INFY Infosys 0.59%
10 JD JD.Com ADR 0.57%
11 NTES NetEase.com ADR 0.49%
12 035420.KS NAVER 0.45%
13 CTRP Ctrip Com International ADR 0.45%
14 TCS.NS Tata Consultancy 0.40%
15 3008.TW Largan Precision Co 0.34%
16 2454.TW MediaTek Inc 0.24%
17 AACAF, AACAY, 2018.HK AAC Technologies (CN) 0.17%
18 HCLTECH.NS HCL Technologies 0.16%
19 2474.TW Catcher Technology Co 0.15%
20 2357.TW ASUSTeK Computer 0.15%
21 LPL LG Display Co 0.14%
22 2382.TW Quanta Computer 0.13%
23 4938.TW Pegatron 0.13%

 

The surge amongst leading emerging market tech stocks over the past year is well documented. For example, the top five stocks in our list above had already delivered 68%, 72%, 40%, 77%, and 46% over the past 1 year in price return (as of October 30, 2017). Market participants have come to realize the potential of these companies and that seems to be priced into the blue-chips. Most of the top 10 stocks of those listed above have been surging and are trading at prices near about their 5-year highs.

However, for investors looking for cheaper bets, looking at the next 10 emerging market tech stocks may bring more value. Here are the key financial metrics {liquidity (current ratio), financial leverage (debt to equity ratio), profitability (gross profit margin)} and current (P/E) and expected (Fwd. P/E) valuation figures for the next 10 emerging markets information technology sector stocks (in accordance with the GICS classification) that could soon dominate the MSCI EM index.

The Next Ten

Company Price P/E Fwd. P/E Current Ratio Total Debt/Equity Margin%
NetEase.com (NTES) $276.51 18.43 17.63 2.56 9.92 56.74
NAVER (035420.KS) $793.26 33.82 34.53 2.33 9.14 NA
CTrip.com (CTRP) $47.01 157.76 56.02 1.52 55 75.40
Tata Consultancy (TCS.NS) $40.46 19.86 19.45 5.55 0.33 43.30
Largan Precision Co (3008.TW) $190.33 29.81 27.38 3.69 0.05 67.05
MediaTek Inc (2454.TW) $11.52 24.81 30.91 1.85 22.27 35.64
AAC Technologies (AACAF) (AACAY) (2018.HK) $17.75 NA 26.55 1.41 38.31 41.55
HCL Technologies (HCLTECH.NS) $13.12 14.09 13.61 2.33 1.34 34.21
Catcher Technology Co (2474.TW) $10.61 12.22 10.84 2.23 31.49 43.48
ASUSTeK Computer (2357.TW) $8.65 11.70 13.40 1.63 2.31 14.19

 

Price and return data as of October 30. Ratios as of FY 2016.

Exchange rates used for conversion (as of October 31): 1 US dollar = 1120.69 Korean won = 64.80 Indian rupees = 30.16 new Taiwan dollars = 6.63 Chinese yuan

  1. NetEase.com (NTES)

NetEase, Inc. is a Chinese Internet Technology Company providing online services centered on content, community, communications, and commerce. NetEase Games is a leading provider of self‐developed PC‐client and mobile games to worldwide users.

The company’s ADR is listed on the NASDAQ GS stock exchange under the symbol NTES. The stock commanded a market capitalization of $36.3 billion in the US stock market on October 30th. Year-end forward P/E for the depository receipt is estimated at 17.63. Estimated earnings-per-share stand at $15.68.

  1. NAVER (035420.KS)

Naver is a popular Web portal in South Korea. It was the first web portal to use its own proprietary search engine. Along with its search engine, the company provides other web portal services such as online games, and content development. The company also offers online marketing service through banner advertisement and e-commerce services.

The company’s stock is listed on the Korea stock exchange under the ticker 035420. The stock commanded a market capitalization of $26.24 billion in the Korean stock market on October 30th. Year-end forward P/E for the stock is estimated at 34.64. Estimated earnings-per-share stand at about $23.

  1. CTrip.com (CTRP)

Ctrip.com International, Ltd. is a leading provider of online travel agency services in China, including mobile applications, accommodation reservation, transportation ticketing, packaged tours and corporate travel management.

The company’s ADR is listed on the NASDAQ GS stock exchange under the symbol CTRP. The stock commanded a market capitalization of $24.1 billion in the US stock market on October 30th. Year-end Forward P/E for the depository receipt is estimated at 56.02. Estimated earnings-per-share stand at $5.56.

  1. Tata Consultancy Services (TCS.NS)

India-based Tata Consultancy Services Limited, a division of Tata Sons Limited, is a global IT services organization that provides a comprehensive range of IT services to its clients in diverse industries. The company caters to finance and banking, insurance, telecommunication, transportation, retail, manufacturing, pharmaceutical, and utility industries.

The company’s stock is listed on the National Stock Exchange of India under the symbol TCS. The stock commanded a market capitalization of about $80 billion in the Indian stock market on October 30th. Year-end Forward P/E for the stock is estimated at 19.45. Estimated earnings-per-share stand at $2.08.

  1. Largan Precision Co (3008.TW)

Taiwan-based Largan Precision Company Limited a major supplier of camera lens modules for smartphones, tablet computers, and digital cameras, among other devices.

The company’s stock is listed on the Taiwan stock exchange under the ticker 3008. The stock commanded a market capitalization of $25.6 billion in the Taiwanese stock market on October 30th. Year-end Forward P/E for the stock is estimated at 27.43. Estimated earnings-per-share stand at $6.95.

  1. MediaTek Inc (2454.TW)

MediaTek Inc. is a Taiwanese fabless semiconductor company that digital multimedia solutions.  for wireless communications, HDTV, DVD, and Blu-ray. The company is a market leader in developing tightly-integrated, power-efficient systems-on-chip (SoC) for mobile devices, home entertainment, network and connectivity, automated driving, and IoT.

The company’s stock is listed on the Taiwan stock exchange under the ticker 2454. The stock commanded a market capitalization of $18.22 billion in the Taiwanese stock market on October 30th. Year-end Forward P/E for the stock is estimated at 30.91. Estimated earnings-per-share stand at $0.37.

  1. AAC Technologies (AACAF) (AACAY) (2018.HK)

AAC Technologies Holdings Inc. designs, develops and manufactures a broad range of miniaturized components for mobile devices such as smartphones, tablets, wearables, ultrabooks, notebooks and electronic book-readers.

The company’s stock is listed on the US stock exchange under the symbol AACAF. The stock commanded a market capitalization of $21.7 billion in the US stock market on October 30th. Year-end Forward P/E for the stock is estimated at 26.55. Estimated earnings-per-share stand at $0.67.

  1. HCL Technologies (HCLTECH.NS)

HCL Technologies Limited is an Indian multinational IT services company. The company provides software development and related engineering services.  The Group’s technologies utilize a variety of technologies, including Internet and e-commerce, networking, internet telephony, and satellite and wireless communications, among others.

The company’s stock is listed on the National Stock Exchange of India under the symbol HCLT. The stock commanded a market capitalization of $18.71 billion in the Indian stock market on October 30th. Year-end Forward P/E for the stock is estimated at 13.60. Estimated earnings-per-share stand at $0.96.

  1. Catcher Technology Co (2474.TW)

Taiwan-based Catcher Technology Co., Ltd. is principally engaged in the manufacture, processing, and distribution of casings and components for computer and consumer electronic products.

The company’s stock is listed on the Taiwan stock exchange under the ticker 2474. The stock commanded a market capitalization of $8.17 billion in the Taiwanese stock market on October 30th. Year-end Forward P/E for the depository receipt is estimated at 10.84. Estimated earnings-per-share stand at $0.98.

  1. ASUSTeK Computer (2357.TW)

Asustek Computer Inc. is a Taiwanese multinational computer and phone hardware and electronics company. The company manufactures and markets computer motherboards, interface cards, notebook computers, and other related products.

The company’s stock is listed on the Taiwan stock exchange under the ticker 2357. The stock commanded a market capitalization of $6.43 billion in the Taiwanese stock market on October 30th. Year-end Forward P/E for the depository receipt is estimated at 13.40. Estimated earnings-per-share stand at $0.65.

3 Poland Stocks To Buy Before Its Upgrade From Emerging To Developed Next Year

Poland to be upgraded to developed market in 2018

FTSE Russell plans to upgrade Poland to Developed Market status by September 2018, making it the first Central and Eastern European country to be awarded Developed Market status. This will place Poland along with 24 developed nations ranked by FTSE, and stocks from the country would get included in the FTSE Developed All Cap Ex-US index. The largest investment banks and equity funds use FTSE Russell’s indices to mimic their portfolios.

Poland will constitute 0.38% of the FTSE Developed All Cap Ex-US, lower than its 1.6% composition of the FTSE Emerging All Cap index. As a consequence, JPMorgan expects outflows of $340 million from the country’s stock markets.

Marek Dietl, president of the Warsaw Stock Exchange (WSE) believes this development is a big step and will encourage economic development and capital flows in the country.

“The FTSE Russell upgrade of Poland to Developed Market status represents an acknowledgment of the progress of the Polish economy and capital markets and is a major step in their development”, he mentioned. “Poland has all the features of a developed market, including secure trading and post-trade services, as well as advanced infrastructure,” Mr Dietl continued. “The WSE uses a state-of-the-art trading system and its listed companies meet the highest standards of corporate governance and disclosure requirements. Furthermore, the dynamic development of the Polish economy represents an opportunity for international investors. Poland’s upgrade to Developed Market status is a challenge which we are ready to face.”

Why it matters

Countries that get included in MSCI indices usually attract fund flows. There are passive funds that track these inclusions to keep tabs on overall market sentiment. Index weighting and composition is an important metric for investors as fund managers and foreign investors try to mimic the index when allocating their funds and building their portfolios.  Countries that are included in the MSCI Index generally see higher allocation from foreign investors. The addition of stocks to major indices also increase their overall trading volumes and thereby their returns. Conversely, removal can lead to outflows from the country’s stock’s markets. In Poland’s case, experts currently expect outflows in the near-term as global portfolio managers will realign their portfolios after the upgrade.

ETFs offering exposure to Poland

Foreign investors seeking exposure in Poland could invest in country-focused ETFs that offer diversification through investment in a single US security. Alternatively, investors wanting direct exposure could consider ADRs of Polish companies.

The most popular ETFs for U.S. investors are the iShares MSCI Poland Capped ETF (EPOL) and the VanEck Vectors Poland ETF (PLND). The VanEck Vectors Poland ETF (PLND) invests 91% of its portfolio in Polish Equity while the iShares MSCI Poland Capped ETF provides 100% exposure to Poland.

With assets under management of $356 million, the EPOL ETF offers concentrated exposure to polish companies. Financials are the top sector with 43% of assets, followed by energy, consumer cyclicals, and utilities. The funds top ten holdings constitute ~60% of its assets. The fund is up 49% over the last one-year period, and year-to-date in 2017 it has gained 47%.

The PLND ETF invests in a portfolio of companies that generate at least 50% of revenues from Poland. Financials are the top sector with 39% of assets, followed by energy, consumer cyclicals, and utilities. With assets under management of only $21 million, this fund has been unable to garner significant interest from the investor community. However, the fund is up 53% over the last one-year period, and year to date in 2017 it has gained 50%.

Stocks to buy

Year-to-date, the MSCI Poland Index has surged 15.83% while the Polish benchmark WIG20 index has gained 29%.

The largest Polish stocks by market capitalisation are Polski Koncern Naftowy Orlen, Pko Bank Polski Sa, Powszechny Zaklad Ubezpiecze, Polskie Gornictwo Naftowe I, Bank Zachodni Wbk.

Currently, these stocks have market caps of $14.9 billion, $12.4 billion and $10.5 billion, $10.5 billion, and $9.7 billion respectively.

Year to date, shares of these companies have returned 20.5%, 7.7% and -12.8% respectively.

Polski Koncern Naftowy Orlen

PKN Orlen is a Poland based oil refiner and petrol retailer with largest operations across Poland, Czech Republic, Germany, and the Baltic States. Orlen is the largest fuel retailer in Poland with 2,000 outlets and has made significant investment abroad. The company has a majority stake in Czech based refiner Unipetrol. Orlen also owns ~85% of the only oil refinery in the Baltic States – ORLEN Lietuva – that it took over in 2006 from Yukos.

PKN Orlen, under a joint venture with the Netherlands firm Basell, also owns Poland’s largest plastics company. In 2005, PKN Orlen was involved in a proposed merger with Hungarian oil major MOL Group that would have resulted in the combined companies becoming the largest in Central Europe. However, the planned merger failed.

PKN Orlen is the largest Polish company by revenues with annual sales of $20.2 billion in 2016.

The company trades on the Polish, Berlin and Frankfurt stock exchanges with tickers PKN.WSE, PKY1.BE and PKY1.F. With a market value of over $14.9 billion the company is currently the most valuable company in Poland.

PKO Bank Polski SA

PKO Bank is Poland’s largest bank with assets of nearly $78 billion in 2016. PKO Bank is one of the best-recognised and most valuable brands in Poland. The bank’s primary area of expertise is retail banking. It services both retail and corporate clients. The bank also has a presence in Ukraine through its stake in Kredobank.

The Polish state government still holds a 51.2% stake in the bank through various state-owned companies, despite the bank going public on the Warsaw Stock Exchange in May 2011.In 2016, PKO Bank reported net interest income of nearly $2.1 billion and ranked 900 on the Forbes Global 2000 companies.

The company trades on the Polish, Berlin and Frankfurt stock exchanges with tickers PKO.WSE, P9O.BE and P9O.F.

Powszechny Zakład Ubezpieczeń

Powszechny Zakład Ubezpieczeń, or PZU Group is one of the largest financial institutions in Poland and is one of the biggest insurance providers and Eastern and Central Europe.

PZU Group offers the largest selection of insurance products in Poland in the areas of non-life insurance, personal and life insurance, investments funds and open pension fund. PZU provides comprehensive insurance coverage in all key sectors of private, public and economic activity. The PZU Group also manages an open pension fund, investment funds and savings programmes.

In 2016, the company generated revenues of $6.2 billion, gross written premiums of $2.9 billion and net profits of $436 million.

The company trades on the Polish, Berlin and Frankfurt stock exchanges with tickers PZU.WSE, 7PZ.BE and 7PZ.F.

Asia’s Share of Blockchain Deals Is Booming While North America’s Is Shrinking

Why are blockchain applications practical emerging markets?

The Bitcoin surge has put blockchain or distributed ledger technology on every investor’s radar. While market participants remain divided on the Bitcoin boom continuing or going bust, there are very few contesting the growth and potential of the blockchain technology behind it.

While the United States and Europe dominate the blockchain innovation landscape, the scale for its future growth potential could tilt towards emerging markets (EEM) (VWO).  With higher banking risks and lower banking penetration, developing economies offer the perfect setting for adoption of blockchain-based financial solutions. In fact, blockchain technology is already impacting the provision of financial economies in selected regions of Asia (AAXJ) (VPL), Africa (EZA), and Latin America (ILF).

Asia has emerged as a key player in blockchain technology

Asia has emerged as a key player in this regard (chart above). The region, for its part, brings together regulatory activism, a dynamic technological/fintech ecosystem, the collaboration of industry and entrepreneurial players, and sustained access to venture capital, which is key for any economy that wishes to leapfrog on innovation. Over the years, Asia’s share of global Bitcoin (ARKW) (ARKK) and blockchain deals has risen from 8.5% (2013) to 22.7% (2016), according to data provider CBInsights.com. At the same time, North America’s dominance has reduced from 78.7% to 49.2% over the same period.

Moreover, an increasing number of emerging and frontier (FM) (FRN) market companies are now dominating the Bitcoin and blockchain space (see chart above). Asia especially, with its forward-looking regulatory environments, is steadily emerging as a leader in the testing of, and investment into, blockchain technology.

Leading the blockchain-based solutions for the financial services industry

Asia is currently the leader for emerging markets in blockchain-based solutions for the financial services industry. Markets such as China (FXI) (YINN) and India (EPI) in particular have facilitated the adoption of the technology by massive digitization of payment solutions. Cryptocurrency is already being tested and adapted to facilitate trade finance, and the technology is being levered to improvise on processes such as e-proxy voting, land registry management, and supply chain management.

In the next article we’ll take a quick look at the current state and future potential of blockchain technology in emerging economies such as Asia, Africa, and Latin America.

Electric Vehicle Battery Makers Are Disrupting Global Mining of These 3 Metals

World’s top battery makers have a plan…

With cobalt prices soaring, the world’s top battery makers, a majority of which are based in emerging Asia (AAXJ) (VPL), are looking to tweak the ratios of raw materials used in the manufacture of lithium-ion batteries. More specifically, they’re attempting to reduce the amount of one of the more expensive components, cobalt, being used in the production process. The rare metal has more than doubled in price over the past year on strong demand accompanied by a supply shortage. We’re now seeing car giants rushing to lock in supply deals with cobalt miners. The Volkswagen (VLKAF) (VLKAY)-CATL-Glencore (GLNCY) (GLCNF) deal in just one example.

…with the demand for EVs to jump 20x by 2025

With the demand for electric vehicle batteries predicted to jump 20-fold from 2015 to 2025, emerging market  (EEM) (VWO) battery makers are currently testing a new recipe.

Panasonic (PCRFF) (PCRFY), the world’s leader in battery production, is working on reducing cobalt consumption in its battery production process. With customers including Tesla (TSLA), Panasonic currently employs NCA (nickel-cobalt-aluminum) technology in battery production. The two companies are now together working to develop a battery with 85% nickel composition.

South Korea (EWY) based Samsung SDI (SSDIF) and LG Chem (LGCLF) are developing new power packs that use more nickel and less cobalt. Samsung SDI expects the industry-wide amount of cobalt per battery unit to decrease to about half of current levels over the long term.

Change is good

Currently, the more popular NMC (nickel-manganese-cobalt) formula employs a 6:2:2 ratio; that is, a ratio of 60% nickel to 20% cobalt and 20% manganese. SK Innovation, another of South Korea’s top battery makers, is working to change the composition of these cathode materials to 80% nickel, 10% cobalt and 10% manganese; so an 8:1:1 ratio.

Consequently, depending on the success of efforts to change the ratio of lithium-ion batteries inputs from the current 6:2:2 to 8:1:1, the demand for nickel may grow by 10-40% from its current level by 2025 (according to a UBS report).

Meanwhile, China’s (FXI) (YINN) EV battery producers such as BYD (BYDDF) (BYDDY) are focused on cheaper lithium-iron-phosphate (LFP) batteries that don’t use either nickel or cobalt.

This Next-Gen Internet ETF Has Returned 2X More Than The FANG ETF

The next-gen internet ETF, ARKW has returned 60% YTD

As of October 13, 2017, the next-gen internet ETF, the ARK Web x.0 ETF (ARKW) has returned 60% to investors on a year-to-date basis. Over the same period the FANG-stocks tracking First Trust Dow Jones Internet ETF (FDN), has delivered half of the ARKW return at 29%.

The Web x.0 ETF ARKW “Next Generation Internet” ETF (ARKW) focuses on companies that are expected to benefit from the shifting of the bases of technology infrastructure to new-age themes such as cloud computing, big data, machine learning ,internet of things, blockchain, e-commerce, and digital media, among other areas.

Meanwhile, the First Trust Dow Jones Internet Index Fund (FDN) has a large portfolio allocation to each of the FANG stocks. The FANG stocks, which usually attract a lot of investor attention, comprise the top four technology companies in the US. FANGs is an abbreviation representing Facebook Inc. (FB), Amazon (AMZN), Netfix Inc. (NFLX) and Google (GOOG) parent Alphabet Inc. Currently, these stocks command an 8.18%, 8.23%, 5.54%, and 9.93% weight in the FDN portfolio.

Price Return: 2X the FDN ETF

Nonetheless, the ARKW has delivered more than double the price return generated by this FANG stocks-tracking ETF so far this year. Looking beneath the surface, there are 3 key reasons why the ARKW was able to generate such exceptional returns for investors.

  1. Focus on next-gen technology companies

While the FDN is invested in the present day top-performing blue-chip technology stocks, the ARKW is invested in companies that are poised to benefit from the next-generation of technology infrastructure. With technology changing and adapting at sonic speed, future returns, which seem to be more promising from companies in the ARKW portfolio, matter more to investors. Moreover, while the FDN stocks seem to have ridden their surge, many of the ARKW stocks have their growth paths lying ahead of them.

2. Includes emerging and frontier market stocks

100% of the FDN portfolio is comprised of US-based stocks, while the ARKW portfolio has a 10% allocation to emerging market (EEM) (VWO) stocks, 2% to the frontier markets (FM) (FRN), and another 7% to ex-US developed markets (VEA). Stocks of emerging and frontier market growth-oriented companies, albeit riskier, also have a higher return potential than their mature developed market counterparts.

3. Has exposure to bitcoin

The ARKW has about 5.4% of its assets invested in the Bitcoin Investment Trust (GBTC). The GBTC, up 400% for the year, enables investors to gain exposure to the price movement of bitcoin through a traditional investment vehicle, without the challenges of buying, storing, and safekeeping bitcoins. Bitcoin, from its humble beginnings, has now grown to a $91 billion market (as of October 16).

Investors, however, must bear in mind that the ARKW comes with a higher expense ratio of 0.75%, as compared to the FDN which charges 0.54%.

These Three Frontier Markets Countries Have Already Launched Their Own Cryptocurrencies

Economies are increasingly adopting cryptocurrencies

Bitcoin’s humble beginning in 2009 and its subsequent growth to a $76 billion market cap (as of October 9) bears testimony to the conviction of blockchain technology as a means of payment. Blockchain technology and its product, cryptocurrencies, are gaining acceptance amongst a handful of sovereigns that are now considering the idea of developing their own digital currency. Cryptocurrencies together now command over $150 billion in market capitalization.

There are approximately 50 countries globally (ACWI) (VTI), which currently do not have or do not use their own sovereign currency. This is resulting in some governments beginning to consider the creation of a digital currency of their own. The prospect of decreased transaction costs and ease of ownership make the option increasingly appealing, particularly for use in international transactions.

Presently, there are three frontier markets (FM) (FRN) that are already using digital currencies (ARKW), and a fourth is preparing to do so. Emerging markets (EEM) (VWO) such as China (FXI) and Russia (RSX) are also considering various applications in this regard. Meanwhile, the emirate of Dubai recently launched its own blockchain-based cryptocurrency known as emCash.

Here are the 3 frontier markets that are already using digital currencies, and the fourth which is preparing to join the list:

1. Ecuador

In 2014, Ecuador became the first country in the world with its own digital currency. The small Latin American (ILF) nation is the first to have a state-run electronic payment system known as Sistema de Dinero Electronico. The system allows Ecuadorian residents to pay for public services via their mobile wallets. The scheme intends to help begin to reduce government spending of more than $3 million a year to exchange old notes for new dollars. The 5-year goal for the digital currency is to reach over 4 million users registering around $80 million.

2. Tunisia

Since 2015, Tunisia has been using the universal contracting platform, Monetas, to boost its eDinar (aka Digicash and BitDinar) digital currency using the blockchain. The Monetas platform is an advanced crypto-transaction technology that uses a Blockchain secured digital notary to enable all kinds of financial and legal transactions, public or private, globally. With the La Poste Tunisienne android application powered by Monetas, Tunisians use their smartphones to make instant mobile money transfers, pay for goods and services online and in person, send remittance, pay salaries and bills, and manage official government identification documents.

3. Senegal

In December 2016, this West African country launched its own national digital currency, eCFA, valued at par with the CFA franc. The eCFA was developed by the Banque Regionale de Marches (BRM) and eCurrency Mint and is compatible with other digital cash systems in Africa. The blockchain-based currency has been designed to be compatible with other digital currencies in Africa (EZA). The drive for its very own digital currency perpetuated from the fact that Senegal’s CFA franc is shared by 14 countries in West and Central Africa, and its value is guaranteed by the French government.

Estonia

This European country (VGK) (EZU) is among the most tech-friendly countries in the world. The economy already has an e-Residency programme in place where the government stores its data on the blockchain. Now, the Baltic country is on track to creating its own digital currency, Estcoins, which will be available for use by members of its e-Residency programme. The project is being advised by Ethereum founder, Vitalik Buterin.

Asian Stocks to Watch: Korean and Chinese Electric Vehicle Battery Makers

Chinese and Korean EV batteries makers are poised for growth

A recent Credence Research report estimates the market for lithium-ion batteries to reach $95.9 billion by 2025. No doubt, global electric vehicle (EV) batteries makers are already scrambling for position in this high-growth market. While Japan’s (EWJ) Panasonic is currently leading the world (ACWI) (VTI) in supplying batteries to electric vehicles (EVs) manufacturers; we’re increasingly seeing Chinese and Korean EV batteries makers getting engaged in the battle for dominance in the global automotive lithium-ion battery sector. China (FXI) (YINN) and Europe (VGK) (EZU) are considered the key battle-grounds for EV sales.

 

Chinese batteries makers are already working towards high targets set for 2020 with notable government support. According to Bloomberg New Energy Finance estimates, if Chinese batteries makers deliver on their targets, the economy should be in a position to produce 121 GWh (gigawatt hours) of battery power by 2020; enough to charge over 4.8 million electric cars to each travel 100 kilometers.

On the other hand, South Korea’s three leading EV battery manufacturers, LG Chem, Samsung SDI and SK Innovation, have together pledged to invest a combined $1.77 billion to expand EV and hybrid battery production capacity in South Korea by 2020. With domestic demand limited, these battery makers are expanding their global manufacturing footprints trying to cash-in on Europe’s fast-growing EV market.

For emerging market (EEM) (VWO) investors, here’s a quick list of the top Chinese and Korean EV batteries makers.

China

In China, the list of EV batteries makers is led by BYD, CATL, and Tianjin Lishen Battery. BYD and CATL have seen particular benefit from government support.

BYD or “Build Your Dream” (1211.HK) (BYDDF) (BYDDY) is China’s largest battery maker. The company produced approximately 100,000 EVs or plug-in hybrids in 2016. Consistent with BYD’s strategy of vertical integration, the company currently has 20 GWh of battery cell capacity. The company’s target for 2020 is set at 34 GWh. Warren Buffet’s Berkshire Hathaway has a 10% stake in the company.

CATL or Contemporary Amperex Technology Ltd. focuses on the production of lithium-ion batteries and the development of energy storage systems. CATL currently has 7.7 GWh of battery capacity and plans to reach a battery production capacity of 50 GWh by 2020.

Tianjin Lishen Battery Co., Ltd. engages in the development, manufacture, and sale of lithium-ion batteries. The company plans to have 20 GWh of battery cell capacity by 2020.

To allow electric cars to go further on a single charge, a critical factor for batteries is their energy density. For now, China lags behind Korean makers in terms of the technology to provide greater energy density. South Korean companies have been involved in high-performance batteries manufacturing for over 15 years now, long before China got into it.

South Korea

In South Korea, the list of EV batteries makers is led by LG Chem, Samsung SDI, and SK Innovation.

LG Chem or LG Chemical (051910.KS) (051915.KS) (LGCLF) is the largest Korean chemical company. The company is principally engaged in the manufacture of petrochemical materials. The company also provides lithim-iion batteries for laptops, phones and electric vehicles (EVs). The company has plans to start production at a newly-built EV battery factory in Poland which has a capacity to produce battery packs for 100,000 EVs per year, in addition to existing plants located in South Korea, China, and the USA.

Samsung SDI (006400.KS) (006405.KS) (SSDIF) manufactures and sells batteries worldwide. It manufactures and sells small-sized lithium-ion batteries of various kinds and uses, including automotive batteries. The company has completed the construction of a new EV battery plant in Hungary in May with an initial capacity to produce 50,000 EV battery packs per year. When operative (2018), the new plant will serve to strengthen Samsung SDI’s global EV production network which already includes facilities in South Korea and China.

SK Innovation (096770.KS) (096775.KS) is a Korea-based holding company principally engaged in the manufacture and distribution of petroleum products. It is Korea’s first and largest energy and chemical company, now also engaged in future energy. As an EV batteries maker, it is the smallest of the three in South Korea. Nonetheless, the company’s South Korean production capacity is estimated to rise to about 150,000 EV battery systems per year.

The competition ahead

What remains to be seen is how the above listed Chinese and Korean EV batteries makers will fair compared to their Eastern and Western competitors. In the East, established Japanese batteries makers such as Panasonic, AESC, and GS Yuasa (GYUAF) stand in competition, and in the West, industry giants such as Johnson Matthey (JMPLY) (JMPLF), Bosch, and Johnson Controls (JCI) are also vying to become major suppliers of EV batteries globally.

Moreover, a number of global vehicle manufacturers are now developing their own EV battery capabilities. German Daimler’s (DAI.DE) (DDAIF) (DMLRY) Li-Tec Battery subsidiary and Japanese Toyota’s (TM) Primearth EV Energy are prime examples. Tesla (TSLA) is also building its own multi-gigawatt hours battery plant in partnership with Panasonic (PCRFY) (PCRFF) in the US.

These Two African Countries Account For 60% Of the World’s Cocoa Production

World cocoa production is dominated by the emerging and frontier markets

The list of world’s top 10 cocoa producers is comprised of all emerging (EEM) (VWO) and frontier (FM) (FRN) market nations. Ivory Coast and Ghana top the list with about 1.5 million and 0.8 million tons of cocoa beans produced, annually. Together, they account for approximately 60% of the world’s cocoa production.

Ivory Coast and Ghana produce 60% of the world’s cocoa

In Ivory Coast, leader of the top cocoa producers in the world, the cash crop accounts for over 60% of its trade revenue. Chocolate manufacturers such as Nestle and Cadbury receive much of their cocoa from Ivory Coast.

Ghana is the second leading cocoa manufacturing country. Cocoa is critical to the country, accounting for 1/6th of the economy’s GDP. Next in line are Indonesia (EIDO), Nigeria (NGE), Cameroon, Brazil (EWZ), Ecuador, Mexico (EWW), Peru (EPU), and the Dominican Republic, all contributing an outsized share of world cocoa production.

Now, the price of cocoa has been sliding over the past year on account of a supply glut, leaving a bitter taste in these nations, which are exceptionally dependent on the soft commodity.

Cocoa farmers earn just 6.6% of the price of chocolate

Ivory Coast and Ghana currently have a combined GDP of $69.3 billion, according to World Bank data. Meanwhile, chocolate manufacturers such as Nestle have annual sales of about $90 billion. Farmers employed towards producing 60% of the world’s key chocolate ingredient end up earning about 6.6% of the final price of chocolate.

However, these two frontier markets are now looking to capture a larger share of the earning, and have more influence on world cocoa prices. In the next section, we will take a closer look at their strategies.

Saudi Bank Stocks Are At Their Most Attractive Valuations in 10 Years

Saudi banks: good value at attractive prices

Part 1 of this series took a closer look at Saudi stocks and their value at current prices. Now, while Saudi Arabia (KSA) appears poised to continue to deliver small victories in its long-term diversification and transformation agenda, the markets remain skeptical at present about its growth and earnings outlook. The banking sector is seen as a good value point (for reasons discussed in Part 1) at present, with Saudi banks currently trading at historically low price-to-book ratios.

Moreover, the book value per share for the sector has been rising steadily over the past 10 years. These facts are evident in the forward valuation metrics of the S&P Saudi Arabia Banks price in the LCL Industry Index, charted above.

Potential FTSE upgrade may boost Saudi stocks

Saudi Arabia’s financial sector stocks such as Al Rajhi Bank (1120.SR) are being looked at in a favorable light by market analysts and investment bankers globally (ACWI) (VTI). Goldman Sachs (GS) upgraded the stock to BUY, citing improving net interest margin estimates, lower funding costs and reduced risk expenses at the bank. The stock also found a place in Deutsche Bank AG (DB) and Dubai-based Arqaam Capital’s top stocks list.

FTSE Russell announced on 30 September that it would not be adding Saudi Arabia to its index of emerging market (EEM) (VWO) countries. Kuwait, however, did make the cut, and was upgraded to emerging as part of the index provider’s country classification annual review.

We drilled through the universe of financial sector stocks on the Tadawul Exchange to filter out three stocks currently trading at attractive valuations. The next part of this series provides insights into the current and future financial valuations for these stocks.

The World’s 5 Largest Solar Power Plants Are In These Two Asian Countries

The 5 largest solar power plants are in the emerging markets

Emerging markets (EEM) (VWO) house the 5 largest solar power plants in the world. India (EPI) and China (FXI) (YINN) in particular have risen to become the leaders in solar power generation globally. The top 5 power plants (by generation capacity) are housed in these two Asian (AAXJ) (VPL) economies. The chart below depicts the top 5 photovoltaic power stations of the world. The 6th, Solar Star, is based in the US and has a solar power generation capacity of 579 -megawatt (MW).

Iran is poised to overtake Solar Star

Iran is now poised to move into the 6th largest slot with its 600 MW plant, scheduled to be built in stages over the next 3 years. Iran’s Energy Ministry recently signed a $600 million financing and development agreement with UK-based specialist renewable energy investor, Quercus, for creating the project together. Lower oil prices and air pollution have been shifting the economy’s focus from natural gas and oil-based power generation to renewables. The project falls in line with the economy’s commitment to develop 5 GW of new renewable energy capacity by 2020. The country’s current installed solar energy capacity stands at 53 MW.

Emerging markets are increasingly investing in renewables

In our recent series, Solar Power in the Lead, as Future Energy Takes Center Stage in the Emerging Markets, we highlighted how emerging markets are currently leading the charts in renewable energy (ICLN) (PBW) (QCLN) attractiveness, with solar energy (TAN) holding enormous potential. Investment flows to the industry are picking up backed by attention and funding from international agencies such as the USTDA, World Bank, and BRICS Bank.

Declining costs of solar panels and wind turbines are making renewable power a more attractive option in the Middle East, Africa, and Asia.

While China and India have already established themselves as the dominant players in the renewable energy market, sub-Saharan Africa (EZA) is also showing immense potential in the renewable energy space, particularly in solar.