Tag Archives: manufacturing

The Trans-Pacific Partnership – Biggest Winners

By Carl Delfeld On Friday, I gave an overview of the Trans-Pacific Partnership (TPP) deals and how the proposed changes will affect the United States. I also revealed one American company poised to benefit from those changes: Hormel (NYSE: HRL ). Today, I’m back to finish this thread by identifying two Pacific Rim countries that are poised to be the biggest winners. In trade pacts, it’s not difficult to figure out who the big winners will be. They’re usually the least-developed countries in the grouping because they have less to lose and the most to gain. For certain sectors, however, more-developed countries can hold a winning hand. Ahead of the Pack New Zealand, for example, is poised to come out ahead. New Zealand represents 35% of world dairy exports, so it’s basically the “Saudi Arabia of dairy.” Fully 37% of its land mass is devoted to agriculture with 48% contributing to total exports. Ninety percent of farm production is exported. Clearly, I’m not the only one who thinks New Zealand is an exceptional place from a risk-reward perspective. Many of the wealthiest people in the world, who have the resources to go anywhere and buy anything, have been quietly establishing escape hatches there. Two of the TPPs others winners hail from Southeast Asia – Malaysia and Vietnam, which still lack bilateral trade agreements with four countries in the pact, including the United States. Both count on TPP members for roughly one-third of their trade, and Bank of America Merrill Lynch estimates that the TPP would push Malaysia’s exports up roughly 10% and Vietnam’s up 30%. And the Winner Is… While Japan and America will get a modest boost of economic growth as this agreement takes effect, the big winner will be Vietnam. According to UBS report, the TPP could potentially boost Vietnam’s economy by 14% over the next five years. This country of 93 million is bursting with youthful energy, with 50% of its tech-savvy citizens under the age of 30. Its manufacturing wages are 60% of China’s, which is why Samsung ( OTC:SSNLF ) makes half of its cell phones here. About 20% of Vietnam’s GDP is attributed to foreign investment, and that will likely surge even higher. So far in 2015, foreign direct investment is up a stunning 53%; most of it headed to the manufacturing sector. A consumer boom is already underway. To put the potential in perspective, right now only 1.7% of Vietnamese own a car; in Thailand, that figure is 40%. Vietnam also has the lowest GDP per capita among TPP member states: $1,900. Peru is the next lowest at $6,800. Vietnam will become a manufacturing destination for industries that require low-wage labor to remain competitive. Sectors that need cheap wages, such as apparel, footwear, and textiles, should greatly benefit. Eurasia Group estimates that footwear and apparel exports will see a 50% boost over the next 10 years due to the trade pact. “Vietnam has already made huge gains in garment and footwear production, and these deals will help boost its comparative advantage as factories look to relocate from China, promoting more job creation and technology transfer,” said Johanna Chua, an economist at Citigroup. This explains why Vietnam’s exports have tripled in U.S. dollar terms since 2007 and its exports to North American markets are up an amazing 30-fold since 2000. The TPP should lessen the country’s reliance on the Chinese market and widen its appeal to markets such as Canada and Mexico. Meanwhile, the country’s macro situation has markedly improved. A few years ago, inflation was running at 20%, but it’s now down to 2%. Interest rates have fallen from 15% to 6%, property markets have stabilized, and credit growth is up. Despite this progress, Vietnam’s stock market is still well off its high and trading at just eight times earnings. In addition, the current market value of all publicly traded companies in Vietnam is 30% of its GDP, while Thailand and the Philippines are trading at 95% and 115%, respectively. These gaps won’t last forever, so I encourage you to take action by blending the Market Vectors Vietnam ETF (NYSEARCA: VNM ) into your global portfolio. The ETF is a bit top heavy with its top 10 holdings representing 60% of total holdings. Don’t wait too long. This ETF has surged in the wake of the TPP negotiations, but has plenty of room to grow. Original Post

Dollar May Hit Parity With Euro: Bet On These ETFs

With the prospect of interest rate hike back on the table, dollar is likely to hit parity with Euro anytime soon. This is especially true as the Fed hinted at a modest December lift-off if the U.S. economy remains on track. The tight monetary policy will reduce the supply of money flowing into the economy, leading to strength in the greenback. As a result, dollar resumed its clear upward journey against the basket of other currencies, rising over 6% in the past one month. And guess what? The latest string of economic data is clearly supporting this view with October payrolls logging the biggest gain this year, unemployment falling to a new seven-year low of 5% and average hourly wages showing the sharpest growth since July 2009. Consumer confidence is also up, with the University of Michigan consumer sentiment index rising to 93.1 in early November from 90 in October, after dropping to 87.2 in September from 91.9 in August. While the manufacturing sector expanded at its slowest pace in more than two years in October on a weak global economy and strong dollar, rise in new orders spread some hopes in the sector. After two straight months of decline, inflation also rose a modest 0.2% last month – an important factor in the Fed rate hike decision. All these suggest that the U.S. economy is showing an impressive rebound after a lazy summer and looks strong enough for a December rate increase. On the other hand, euro has been slumping against the dollar and tumbled 6% in the past one month. The European Central Bank (ECB) has been looking for more stimulus measures as soon as December to spur growth in the economy and fight against deflation. Currently, the ECB is pumping €60 billion ($68 billion) per month into the sagging economy courtesy of its QE program that began in March and will run through September 2016. These diverging policies will continue to drive the U.S. dollar upward, thereby resulting in depreciation of the euro against the greenback. Further, the latest terrorist attack in the capital of France parked geopolitical tensions and raised concerns over the slowly recovering economy, pushing the euro down. Meanwhile, the tragedy has shaken investors’ confidence around the world, encouraging them to take a flight to safety in the U.S. dollar. If the current trend persists, the EUR/USD parity may be seen as euro will continue to fall while dollar will continue to rise. Investors seeking to tap this opportune moment could bet on the following ETFs. PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ) UUP is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies – euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, UUP allocates nearly 57.6% in euro while 13.6% collectively in Japanese yen and 11.9% in British pound. The fund has so far managed an asset base of over $1 billion while sees an average daily volume of around 2.2 million shares. It charges 80 bps in total fees and expenses, and gained 4.9% over the past one month. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEARCA: USDU ) This product offers exposure to the U.S. dollar against a basket of 10 developed and emerging market currencies by tracking the Bloomberg Dollar Total Return Index. The fund allocates higher to the Euro at 30.3%, closely followed by Japanese yen (18.5%), Canadian dollars (11.8%) and Mexican peso (10.1%). Other currencies like British pound, Australian dollar, Swiss franc, South Korean won, Chinese yuan and Brazilian real receive single-digit allocation in the fund’s basket. This ETF has amassed $248.4 million in its asset base and charges 50% in expense ratio. Volume is light as it exchanges nearly 195,000 shares a day on average. The fund added 3.5% over the past four weeks. ProShares Short Euro (NYSEARCA: EUFX ) This fund seeks to deliver the inverse return of the daily performance of euro versus the U.S. dollar. It is often overlooked by investors as it has just $17.9 million in its asset base while volume is light at around 16,000 shares per day. It charges 95 bps in annual fees and added 6.3% over the past month. Original Post