Around the World with ETFs

By Carl Delfeld of ChartwellETF

Standard & Poor’s, on Monday downgraded Mexico (EWW) on fiscal concerns and prospects for subpar growth. In November, Fitch became the first rating agency to downgrade the country in more than a decade. Monday’s downgrade now puts Mexico’s credit rating at BBB, down a notch from BBB+. However, the country’s rating is still within the “investment-grade” bracket.

Singapore (EWS) has a tax rate of just 17% on corporations and a marginal rate of 20% on incomes over $300,000 (Singaporean dollars). EWS has only 28 stocks in its basket so many of the individual holdings have very high weightings; in fact the top four holdings make up over 45% of the fund.

According to the United Nations, Hong Kong (EWH) has the widest income gap of all the world’s most advanced economies. The wealthiest 10 per cent of people share more than a third of the city’s total income while the bottom 10 per cent account for just 2 per cent. About 18 percent of the population are below the poverty line.

News that Standard & Poor’s had also cut Greece’s credit rating reminded investors that sovereign debt is escalating. The yield on 10-year Greek government bonds at one stage jumped relative to German bonds. To varying degrees, Greece, Spain, Ukraine, Austria, Latvia, Mexico are just a handful of the nations viewed at risk of defaulting.

Bloomberg reports that Japan’s version of a “cash for clunkers” program designed to spur automobile sales discriminates against imported vehicles, Ford Motor Co. (F), General Motors Co. and Chrysler Group LLC said today. Japan’s effort “overwhelmingly benefits the purchase of domestic vehicles over imported ones by making the vast majority of imports ineligible for the program’s significant tax cut benefit,” the auto companies wrote in a letter to the U.S. Trade Representative’s office today.

You have got to be kidding me. So much for reciprocity. Over $2 billion was shelled out by the U.S. taxpayer and the following were the top cars sold through the US cash for clunkers program:1. Toyota (TM) Corolla 2. Honda (HMC) Civic 3. Ford Focus 4. Toyota Camry 5. Hyundai (HYMLF.PK) Elantra 6. Toyota Prius 7. Nissan (NSANY) Versa 8. Ford Escape FWD 9. Honda Fit 10. Honda CR-V AWD.

Brazil's (EWZ,BRF) banks haven't had to deal with the toxic assets that crippled banks in developed countries. A prime reason for the sector's financial health is a high capitalization requirement -- the minimum capital adequacy requirement in Brazil is 11%, compared with 8% under the Basel regulations that other banks around the world follow. In December 2008, the average ratio for the sector in Brazil was 20%, and for the country's five largest banks (accounting for 67% of total assets) the ratio was 18.5%.

One big investor is betting against emerging-market stocks (EEM, VWO), which are losing momentum after months of outperformance. OptionMONSTER's tracking program detected the purchase of about 43,000 June 38 puts on the iShares MSCI Emerging Markets Index (EEM) exchange-traded fund for $2.95. At roughly the same time, an equal number of June 28 puts were sold for $0.65, resulting in a net cost of $2.30. Volume was more than 15 times open interest in both strikes.

India will become the world’s most populous country in 2025, surpassing China, where the population will peak one year later because of declining fertility, according to United States Census Bureau projections released Tuesday.

The bureau suggests that the projected peak in China, 1.4 billion people, will be lower than previously estimated and that it will occur sooner. With the fertility rate declining to fewer than 1.6 births per woman in this decade from 2.2 in 1990, China’s overall population growth rate has slowed to 0.5 percent annually.

In contrast, India’s 1.4 percent growth rate is being driven by a fertility rate of 2.7 births per woman. Interestingly, China and India together account for 37 percent of the world’s population of roughly 6.8 billion. Every minute, 250 people are born worldwide and 107 die, for an increase of more than 75 million annually.

By 2025, the population of the United States will be more than 350 million. The United States fertility rate, is about 2.1 births per woman, is higher than in most developed countries, in part as a result of higher birthrates among immigrants.

After China and India, the most populous countries are, in order, the United States, Indonesia, Brazil, Pakistan, Bangladesh, Nigeria, Russia and Japan.

In the past two weeks Canada’s (EWC) six largest banks have reported combined quarterly profits $3.78bn, spurring bank executives and analysts to predict a “once-in-a-decade” opportunity for international growth. These banks make up almost 30% of the stock market’s capitalization. Canada gained 79,000 jobs in November, lowering its unemployment rate to 8.5 per cent and strongly indicating that the economy is shaking off the worst of the global recession.

The Dow Jones reports that the Japanese (EWJ) central government's primary budget deficit is set to hit a record Y34.204 trillion in the current fiscal year ending March, Parliamentary Secretary of Finance Hiroshi Ogushi said on Tuesday. The amount far exceeds the Y13.1-trillion deficit initially envisioned during the budget-making process late last year, highlighting how rapidly the country's fiscal health is deteriorating due to aggressive government borrowing to pay for measures to boost Japan's weak economic recovery.

It is estimated that the Japan’s debt service as a percent of tax revenue now exceeds 50%, and that is with low interest rates. Japan is on thin ice, to say the least.

Still, all the deflation since the great bubble burst almost two decades ago has not changed the fact that Japan has the second largest household financial assets in the world (about $16 trillion).

Japan’s suicide rate is again on the rise. Police figures show that the number of suicides this year could approach the country’s record high of 34,427, reached in 2003, almost 95 suicides a day.

Kjell Aleklett, professor of physics at the Uppsala University in Sweden, and co-author of a new report, The Peak of the Oil Age, states "oil production is more likely to be 75m barrels a day by 2030 than the 'unrealistic' 105m used by the IEA."

A FT article reported that the Austrian government’s nationalization of the insolvent bank Hypo Group Alpe Adria (HGAA). The financial institution, which has 58 billion in assets, is the country’s sixth largest bank.

Institutional investors increasingly turned to exchange traded funds during last year’s market turmoil, according to Barclays Global Investors’ annual review. Nearly 3,000 global investors used at least one ETF in 2008, an increase of 10 per cent on 2007, BGI found. These included more than half of institutions with assets greater than $10billion.

Nearly a third more hedge funds also turned to ETFs last year, making up the second largest user group. ETF use varied globally with institutional investors making up about 60 per cent of the market in the US. Outside of the US about 85 per cent of users were institutions.

Below is a quote from the Oil Drum about Mexican oil production:

The President of Mexico just changed the head of Pemex as the revenues that the state gets from sale of its oil (making up nearly 40% of the federal budget) dropped 30% in the first half of the year.