Tag Archives: china
Investing Sensibly in China and Its BRIC Buddies
By David Smith August 28, 2013 It was a dozen years ago that Jim O’Neill, the recently retired head of Goldman Sachs ‘ money management arm, coined the term BRICs. It was simply an acronym for Brazil, Russia, India, and China, the four developing nations that were then expected to lead the world’s economic growth well into the future. But the foursome has fallen far short of those expectations. As The Wall Street Journal noted just last week, O’Neill says now that only China has come close to meeting the once heady expectations for the group. Still going strong? Assuming the big country meets the 7.5% growth rate that’s generally expected of it in 2013 — major slippage from prior years, but far better than the 1.5% improvement that’s likely to be coaxed out of the U.S. — it could nudge the combined BRIC growth rate toward intermediate-term expansion of about 6.6%. That’s well below the 8.5% for the past decade, but hardly chopped liver. A key consideration then becomes the existence of meaningful investment opportunities in the countries. India is the most economically downtrodden right now. Indeed, as Derick Irwin of Wells Fargo Advantage Funds was quoted by the Journal as saying not long ago, “India is not an investible economy right now.” Battered Brazil And while my druthers for playing the BRICs lie in the energy sector — several big public companies have sallied forth from the countries to ply their trade internationally, thereby spreading their geographic and geologic exposure — I’d eliminate Brazil’s once beloved Petrobras for now. The Brazilian economy is a shadow of its former self, with likely growth of 2% for the next couple of years providing a meager contrast to the 7.5% the country achieved in 2010. And while discoveries in the pre-salt Santos Basin had the world atwitter not long ago, the realities of sky-high production costs tied to the technologically challenging venue have played a big role in the pummeling of Petrobras’s shares during the past 18 months. A Chinese threesome Turning to China, my inclination is to examine the trio of CNOOC ( NYSE: CEO ) , PetroChina ( NYSE: PTR ) , and Sinopec ( NYSE: SNP ) , in that order. CNOOC is China’s largest offshore producer, with core operations in Bohai Bay off the country’s coast, the China Sea, and the East China Sea. It also works in Australia, Nigeria, Uganda, Argentina, Canada, and the U.S. In February, it spent $15.1 billion to buy Canada’s Nexen, then that country’s second-largest oil company. In the process, it gained operations in the North Sea, the U.S. Gulf of Mexico, and West Africa. It earlier had formed a partnership with Chesapeake for a one-third interests in the Oklahoma City company’s sizable positions in the Niobrara play of Colorado and Wyoming and the prolific Eagle Ford. Despite its broad international swath, a healthy 3.70% forward annual yield, and a 32% operating margin, CNOOC’s forward P/E multiple is just 7.4 times. PetroChina is the largest of the lot, with a $205 billion market capitalization. It’s more operationally diverse than CNOOC, with segments that span exploration and production, refining and chemicals, marketing, and pipelines. PetroChina is acquiring more than half of ExxonMobil ‘s interests in Iraq’s West Qurna-1 field , which may or may not be a good thing. And, in a joint venture with Royal Dutch Shell, its considering constructing an LNG facility in Australia. The company provides a 3.50% forward dividend yield. But while its operating margin is barely a quarter of CNOOC’s, it’s forward P/E is 8.6%. That said, I’d rather own the Hong Kong-based offshore company. My conclusion is similar vis-a-vis a comparison between Sinopec and CNOOC. The former on Monday reported a more than 24% year-over-year earnings increase for the first half of 2013. And while its forward yield is a compelling 5.90%, its operating margin, at 3.6%, is about a ninth of CNOOC’s. In part for that reason, its forward P/E is just 6.2%. A Russian play in London As to Russia, I’ll keep it short but surprising: I’d invest in Rosneft , the country’s giant oil company. But I’d do so through BP ( NYSE: BP ) . As my Foolish colleague Tyler Crowe noted last weekend, BP owns just under a 20% interest in the big Rusky producer. That stake arriveded through the sale of its half interest in TNK-BP, formerly Russia’s third-largest oil company, to Rosneft. The result for BP? A hefty $460 million in annual after-tax dividends. And for investors? A means to participate in Rosneft’s massive expansion with something of a filter from Russian shenanigans . A Foolish takeaway So there you have it: CNOOC and BP appear to be the best vehicles for BRIC energy investing. That conclusion is subject to change for a host of reasons, including geopolitics. Nevertheless, it provides a starting point for analyzing the investment opportunities that still exist among the BRICs. With the energy sector holding steady in the midst of market volatility, one company makes especially good sense for the addition to Foolish portfolios. Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 2.19 million shares . An exclusive, brand-new Motley Fool report reveals the company we’re calling OPEC’s Worst Nightmare . Just click HERE to uncover the name of this industry-leading stock… and join Buffett in his quest for a veritable LANDSLIDE of profits! Fool contributor David Smith owns shares of Chesapeake Energy and BP p.l.c. (ADR). The Motley Fool recommends Petroleo Brasileiro S.A. (ADR). The Motley Fool has the following options: long January 2014 $30 calls on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy . Continue reading
Africa To Establish Free Trade Area By 2015: Zuma
JOHANNESBURG, (Xinhua) — African countries are expected to establish a free trade area by 2015, combining the markets of 26 countries with a population of nearly 600 million people and a combined GDP of 1 trillion U.S. dollars, South African President Jacob Zuma said on Tuesday. “Importantly, this will form the basis for an Africa-wide Free Trade Area, which could create a single market of 2.6 trillion U.S. dollars,” Zuma told delegates attending the first meeting of the BRICS Business Council in Johannesburg. This will enable African countries to further promote intra- African trade, Zuma said, adding that under the auspices of the African Union, African countries are launching an ambitious Tripartite free trade area, bringing together countries of Eastern and Southern Africa. “Africa is becoming a remarkable success story which augurs well for the BRICS partnership,” Zuma said. BRICS is an acronym for the powerful grouping of the world’s leading emerging markets, namely Brazil, Russia, India, China and South Africa. At the 5 th BRICS Durban summit in March, special focus was put on BRICS’ cooperation with Africa. The BRICS-Africa engagement and dialogue signals a new departure and a new avenue to take forward the continent’s development agenda. The ongoing meeting of the BRICS Business Council, which was set up at the Durban summit, will address three key issues—investment opportunities, value-added trade and the BRICS Development Bank. Zuma devoted much of his speech to the potentials of Africa. Africa’s output, he said, is expected to expand by 50 percent by 2015, resulting in a 30 percent rise in the continent’s spending power. “It is becoming well-known as well that the rate of return on foreign investment in Africa is higher than in any other region in the world. This is not surprising given the competitive edge of the continent,” Zuma noted. Africa’s advantages include its extraordinary mineral wealth and agricultural potential. South Africa’s own mineral wealth is estimated at 2.5 trillion U.S. dollars. In addition, the continent has a young working population and a growing middle class with considerable and growing purchasing power. In moves to promote intra-African trade, South Africa will play its own part to promoting investments within the continent, Zuma said. Over the last few years, the South African Reserve Bank approved nearly 1,000 large investments into 36 African countries. These mutually beneficial investments generate tax revenue, dividends and jobs between countries. “While we appreciate that our intra-African trade is still marginal, real barriers are not tariffs, but include other factors such as under-developed production structures and inadequate infrastructure,” Zuma said. He said Africa is poised to make further progress given the focus on improving systems and policies. JOHANNESBURG, (Xinhua) — African countries are expected to establish a free trade area by 2015, combining the markets of 26 countries with a population of nearly 600 million people and a combined GDP of 1 trillion U.S. dollars, South African President Jacob Zuma said on Tuesday. “Importantly, this will form the basis for an Africa-wide Free Trade Area, which could create a single market of 2.6 trillion U.S. dollars,” Zuma told delegates attending the first meeting of the BRICS Business Council in Johannesburg. This will enable African countries to further promote intra- African trade, Zuma said, adding that under the auspices of the African Union, African countries are launching an ambitious Tripartite free trade area, bringing together countries of Eastern and Southern Africa. “Africa is becoming a remarkable success story which augurs well for the BRICS partnership,” Zuma said. BRICS is an acronym for the powerful grouping of the world’s leading emerging markets, namely Brazil, Russia, India, China and South Africa. At the 5 th BRICS Durban summit in March, special focus was put on BRICS’ cooperation with Africa. The BRICS-Africa engagement and dialogue signals a new departure and a new avenue to take forward the continent’s development agenda. The ongoing meeting of the BRICS Business Council, which was set up at the Durban summit, will address three key issues—investment opportunities, value-added trade and the BRICS Development Bank. Zuma devoted much of his speech to the potentials of Africa. Africa’s output, he said, is expected to expand by 50 percent by 2015, resulting in a 30 percent rise in the continent’s spending power. “It is becoming well-known as well that the rate of return on foreign investment in Africa is higher than in any other region in the world. This is not surprising given the competitive edge of the continent,” Zuma noted. Africa’s advantages include its extraordinary mineral wealth and agricultural potential. South Africa’s own mineral wealth is estimated at 2.5 trillion U.S. dollars. In addition, the continent has a young working population and a growing middle class with considerable and growing purchasing power. In moves to promote intra-African trade, South Africa will play its own part to promoting investments within the continent, Zuma said. Over the last few years, the South African Reserve Bank approved nearly 1,000 large investments into 36 African countries. These mutually beneficial investments generate tax revenue, dividends and jobs between countries. “While we appreciate that our intra-African trade is still marginal, real barriers are not tariffs, but include other factors such as under-developed production structures and inadequate infrastructure,” Zuma said. He said Africa is poised to make further progress given the focus on improving systems and policies. Continue reading
China, Africa to Strengthen Agriculture Cooperation
2013-08-29 12:09:54 Xinhua Web Editor: Liu Ranran China and Africa see broad prospects for future agricultural cooperation and the two sides will work to establish a mechanism to advance cooperation in the sector, said an official white paper released Thursday. “The Chinese government attaches great importance to its mutually beneficial agricultural cooperation with Africa, and works hard to help African countries turn resource advantages into developmental ones,” says the paper on Sino-Africa Economic and Trade Cooperation published by the Information Office of the State Council. In recent years, Sino-African trade in agricultural products has grown quickly. From 2009 to 2012, China’s agricultural exports to Africa grew from 1.58 billion U.S. dollars to 2.49 billion U.S. dollars, an increase of 57.6 percent. During the same period, China’s agricultural imports from Africa, mainly non-food items such as cotton, hemp, silk and oilseeds, saw a 146-percent surge. The paper attributes the robust growth partly to China’s zero-tariff policy adopted in 2005 for some African products, as well as Chinese enterprises’ growing investments in Africa. From 2009 to 2012, China’s direct investment in African agriculture grew from 30 million U.S. dollars to 82.47 million U.S. dollars, an increase of 175 percent. Those investment has increased grain supplies in the countries concerned and enhanced the comprehensive agricultural productivity of those countries, the paper says, citing Mozambique as an example, where 300 hectares of experimental paddy fields supported by Chinese investment yielded 9 tonnes to 10 tonnes per hectare for three successive years. The paper says the Chinese government has tried to enhance Africa’s self-reliance capacity to develop its agriculture by setting up technology demonstration centers, and sending experts to share experience in agricultural production. Since 2006, China has helped set up 15 agricultural demonstration centers in Rwanda, the Republic of Congo, Mozambique and some other countries, and is planning to establish another seven. “In the future, China will advance agricultural cooperation with Africa in all respects while ensuring that this cooperation puts both parties on an equal footing, is mutually beneficial, and advances common development,” the paper says. It will work to establish and improve a mechanism for bilateral agricultural cooperation, and strengthen Sino-African cooperation in the sharing of agricultural technologies, resource varieties and agricultural information, the processing and trade of agricultural products, agricultural infrastructure construction, and human resource training, says the white paper. China will also work to deepen Sino-African cooperation within the frameworks of the United Nations Food and Agriculture Organization (UNFAO) and the International Fund for Agricultural Development, according to the paper. Continue reading
