Monthly Archives: November 2013

The Growth Companies of Emerging Markets

The BRICS economies (Brazil, Russia, Indiam China and South Africa) tend to dominate the news headlines when it comes to stories of vast economic growth.

But who are these dynamic companies ?

Here is a quick list of some of the fast growing companies in Emerging Markets:

China Mobile
Taiwan Semiconductor Manufacturing
Petroleo Brasileiro
America Movil
China Construction Bank
Companhia de Bebidas das Americas
Tata Industries
BB Seguridade Participacoes
Grupo Financiero Santander Mexico
Belle International
Bharti Airtel
People’s Insurance Company of China
Sinopec Engineering
China Galaxy Securities
Astro Malaysia Holdings
CEMEX Latam Holdings
Grupo Sanborns
Dr Reddy’s
Industrial & Commercial Bank of China
Petroleo Brasileiro
Tencent Holdings
Indian Tobacco Company
America Movil
Itau Unibanco
Axis Bank
EXXARO Resources
Housing Development Finance
Reliance Industries

As you can see, already some of these names are well know brands, in the future, more of them will become household names, that will become more and more famous in the years to come.

3i: Investors In Industry

3i, once a member of the FTSE-100, today is in the FTSE-250, is a major UK investor.
Found in just after the war in 1945, to help with post war re-construction, and floated on the London Stock Exchange in 1994.

Today it is classed as an Investment Trust, and is a major investor as a Private Equity Investor, with numerous funds under management in Business Services, Consumer, Healthcare, Industrial, also a lender as it has a major Debt finance arm and also a major investor in the Infrastructure sector.

Private Equity Portfolio worth £2,531m
Infrastructure Portfolio with £528m

Total Assets Under Management of £10,493 million = £10.4 Billion.

The Top 10 investments by 3i PLC are:

3i Infrastructure plc UK valuation of £403m
Action Benelux Earnings valuation of £301m
Quintiles US Quoted valuation of  £145m
Xellia Norway Sales valuation of  £142m
ACR Singapore Industry metric valuation of  £118m
Element Materials Technology Benelux Earnings valuation of  £117m
Foster + Partners UK Other valuation of  £108m
Hilite International Germany Earnings valuation of  £108m
Mayborn UK Earnings valuation of  £100m
Mémora Spain Earnings valuation of £82m

As shown above, one can see the financials.

Largest shareholders:

BlackRock, Inc 11.01 %
UBS Global Asset Management 4.79 %
Artemis Investment Management LLP 4.65 %
Sherborne Investors (Guernsey) B Limited 44.93 %
Legal and General Group plc 3.15 %

A company whose role is to invest. Investment creates wealth, prosperity and jobs.

The Fundamentals of the Indian Economy

China is sometimes known as the Dragon, and India is known as the Elephant. The I in BRICS is India.

Today £1 buys you 101 Indian Rupees. It was only a few years ago (less than 24 months ago), when £1 bought you 80 Rupees. The decline in the Rupee by over 20% has been a major concern to the Indian economy as now foreign imports such as oil have become very expensive to the Indian market place.

The Indian Central Bank, known as The Reserve Bank of India [] has appointed the former IMF man, Dr. Raghuram Rajan as governor.

His book “Fault Lines” is an excellent read.


Today India has a population of 1.2 Billion, (1,200 Million). 65% of which are under 35, that equates to 780 Million people. This is a massive potential consumer base. Also in 2012 with Europe in recession, the Indian economy grew at 3.2%.

The average age of an Indian today is 26.
33 million land lines (fixed)
894 million mobile phones.

The economy is £1.2 trillion (£1200 Billion) = US$2 Trillion.
Only 2.5% of the population pays income tax.
Manufacturing only accounts for 14% of the economy.
It runs a trade deficit of 17% of GDP (massive imports and humble exports)
50% of the population work in agriculture (thus explaining why India has great food)
The service sector accounts of 50% of India’s economy, e.g. outsourcing and this employs over 25% of the workforce.

India has a middle class of over 200 million, who have disposable income and demand luxury items such as upmarket cars to branded clothes.
A comparison is made to the Chinese consumer. Today the average India consumer drinks 1% the amount of wine that a Chinese person consumes, another benchmark is the consumption of snacks, today an Indian consumer eats only 15% of what a Chinese consumer eats in snacks.

Thus the upside is massive. To see this in action, some Indian companies have a global brand and reputation:

Tata (who own Jaguar Land Rover, and Corus Steel, the old British Steel), Quinnox, Tech Mahindra, ICICI Bank, HDFC, Bajaj Auto, Vedenta Resources, Bharti Airtel, State Bank of India (largest number of bank branches in the world) Zee TV, Infosys, HCL Technologies, ArcelorMittal (the world’s largest steel maker), Godrej Group, Dr Reddy’s Laboratories of Hyderabad, Reliance Industries, Wipro,  and Bank of Baroda.

The Indian economy has massive potential.

The world’s largest investment fund.

The Vanguard Total Stock Market Index Fund, is the largest single investment fund.
With assets of £178,592 Million (£178 Billion) =[US$ 287.68 Billion]

The top ten holdings account for 14.5% of the fund = £25.89 Billion

1 Apple Inc.
2 Exxon Mobil Corp.
3 Google Inc.
4 General Electric Co.
5 Microsoft Corp.
6 Johnson & Johnson
7 Chevron Corp.
8 Wells Fargo & Co.
9 Procter & Gamble Co.
10 Berkshire Hathaway Inc.

Not entirely suprising the fund invests in some of the worlds largest companies, it is tracking the global stock market, that is of course dominated by the largest corporates in the world.


this fund overtook the famous Pimco Total Return Bond Fund, which for the past years was the largest investment fund, run by Bill Gross.
The Vanguard Total Stock Market Index Fund is run by computer, as it is an index tracker, thus Vanguard are able to offer low charges on the fund to investors, and not pay high fees for money managers.


The European Central Bank: Potential Negative Interest Rates

On Bloomberg on Wed 20th Nov, was an article about the ECB considering negative interest rates. According to the article, the European Central Bank “will offer” -0.1% on deposits


What this means, is that clearing banks in the uro Zone who deposit cash with the European Central Bank will be effectively charged for holding their money with the central bank, thus negative interest rates.

e.g. €1,000,000 on deposit (€1m) over 12 months will become €999,000.
Yes a loss of €1,000 Euros.

One potential positive side effect of negative interest rates, is that the clearing banks may actually decide not to deposit excess cash with the European Central Bank, and instead use the cash to create loans for business, industry and individuals to kick start employment and economic growth.

Perhaps the economic state of the uro zone is worse than what is actually reported, and the European Central Bank is taking drastic and radical action to fight economic stagnation and the record unemployment that is affecting so many people, and threatens to create lost generation.

Severn Trent & a new CEO

In the news on Monday 18th November, it was annnounced that the CEO of BT Openreach’s Liv Garfield is leaving BT to join the Severn Trent, the water utilities company that supplies services in the Midlands.

A lot of overlap between BT and Severn Trent, have both highly regulated business’s (BT Openreach an Severn Trent Water) and non-regulated businesses (BT Global Services and Severn Trent Services), and also they have massive similarities, in the sense they are both infrastructure companies with hard assets, BT has the ducts and fibre, moving information, and Severn Trent has pipes moving water products.

Looking at Severn Trent, it is a massive business.


With a market capitalisation of £4350 million (£4.3 Billion), it is a member of the FTSE-100.

The annual report makes interesting reading


The total 2013 dividend was £0.75. On a share price of about £18.24, the dividend yield is over 4%. (not bad in a near zero interest rate climate)
The dividend cost Severn Trent £322 Million.

Capital expenditure on the Severn Trent network of £555 million

Wages for the staff cost £282.9 Million

Carries quite a large debt load, of £4,297 Million (£4.297 Billion) which is relatively easy to bare, when the company has stable cash flows (people paying the water bill).
Interest payments on debt costs Severn Trent £233 million.

The Severn Trent Pension Fund has assets of £1,724 million, but has liabilities of £2,098 million

The biggest shareholders are:

Blackrock Inc owning 9.87%
Newton Investment Management Ltd owning 5.09%
Legal & General Group Plc owning 4.04%

A large scale utility.

The Russian Economy

The R is “BRICs” is Russia.

Moving forward from the collapse of political and economic dictatorship in the late 1980’s and early 1990’s and the progressive policies formed from ‘Glasnost‘ meaning openness and ‘Perestroika‘ meaning restructuring, the Russian economy has radically evolved.

The Russian stock market has a huge concentration of oil and gas stocks (names like Rosneft and Gazprom are pretty familiar). Exports from oil and gas make up just over 20% of Russian GDP. Also other companies are raising their profile, such as VTB Capital, Kaspersky Labs, Alfa Bank, Lukoil, Mobile Telesystems, RosTelecom, TNK-BP, Svyazinvest and VimpelCom.

What is interesting is to look at domestic mortgage debt in Russia. Today the mortgage debt in only 3% of total GDP, in the UK mortgage debt is 84% of total GDP, in the USA mortgage debt is 76% of total GDP.
What is also incredible, is that today the Russian government, actually has a budget surplus, it spends less that it earns.

Also the domestic banking sector offers depositors an average interest rate of about 6% on savings. What is also noticeable is the growing middle class, and reading articles from The Boston Consulting Group, by 2016, Russia will overtake Germany as the largest market for cars in Europe, and by 2020, will command sales of over 4.4million new cars. Russia is becoming a more developed and stable economy.

Fund Focus: The Edinburgh Investment Trust

The Edinburgh Investment Trust plc is a listed investment company, whose market capitalisation is £1,136 million = £1.136 Billion


Day to day management is by Invesco Perpetual, currently managed by Neil Woodford, who shortly will depart from Invesco Perpetual.

Its top 10 holdings are:

GlaxoSmithKline 8.9% of the portfolio
AstraZeneca 8.7% of the portfolio
BT 7.8% of the portfolio
British American Tobacco 6.3% of the portfolio
Roche – Swiss common stock 6.2% of the portfolio
BAE Systems 5.6% of the portfolio
Imperial Tobacco 5.2% of the portfolio
Reckitt Benckiser  4.6% of the portfolio
Reynolds American – US common stock 4.4% of the portfolio
Capita 4.3% of the portfolio

The top 10 holdings make up 62% of the £1.136 Billion.

Looking at the total portfolio []

It only has holdings in 46 companies.

Interesting to note that the largest single holding of the Edinburgh Investment Trust, is GlaxoSmithKline.
It owns 7,733,586 shares. Today GlaxoSmithKline has a share structure of 4,862,666,685 shares.
This means that the Edinburgh Investment Trust plc owns 0.15% of GlaxoSmithKline PLC.

The yield on Edinburgh Investment Trust plc is 3.9%. Incredible yield in this low interest rate climate.

The Asian Economic Pace of Change

The term BRICS (Brazil, Russia, India and China) came from Jim O’Neil at Goldman Sachs Asset Management. He was of course referring to the economic strength of these new growth markets in these emerging nations. It is these countries and new markets that are beginning to dominate the global economy.

Some very simple statistics explain this.

In 1980 the United States of America accounted for 25% of the world’s GNP (Gross National Product). China in 1980 only accounted for 2.2% of the world’s GNP.
(yes, China was less that 10% of the US economy in 1980).

Now, projections for 2017 (just over 3 years from now), in 2017 the United States of America will account for 17.6% of the world’s GNP (Gross National Product) and China will account for 18% of the world’s GNP.
(Yes, China will overtake the USA).

Another statistic is the consumer base.

Today Europe accounts for 7% of the global population, it is 25% of the global gross national product, and more worrying, accounts for 50% of social spending. This is totally unsustainable. (An Angela Merkel quote)
Today in Asia the middle class, thus consumers with disposable income, account for about 500 million. This number could be as high as 1,750 million (1.75 Billion) by the year 2025.

We are perhaps seeing a shift in global economic dominance, within the next 5 years.

Final point, the largest economies from 1 AD to 1800 AD were India and China. It was the industrial revolution in the 1800’s, the advancement in maths, technology, science and automation from Europe, that made the US and Europe dominate the global economy for the past 200 years.

Perhaps we are seeing history all over again, with wealth and dominance moving back to Asia who dominated the global economy for the first 1800 years. One hopes that global wealth is spread across right across the globe, otherwise we will see a decline in living standards in Europe and North America.

The Value of US Crude Oil Production.

The United States of America is the largest consumer of crude oil. It is a net importer of oil from around the world.
However, domestic oil production is now becoming non-trivial.

Each day, the US produces 7.5 Million Barrels of Oil.
A barrel of oil is about $106

That equates to:

7,500,000 x $106 = $795,000,000 = $795 Million a day. ($0.795 Billion)

Yes, US crude oil production is worth a staggering $795 Million a day to the US Economy.

UK Government Borrowings: October 2013

Another month, guess what, take a wild guess, it is the same old story, HM Government, spends more money than it receives via taxes. Another deficit month, thus to bridge the gap, needs to borrow on the bond market.

In October 2013, the HM Government had to borrow money to meet the difference between tax revenues and public sector expenditure. The term for this is The PSNCR: The Public Sector Net Cash Requirement.

There were “only” 3 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office ( to raise cash for HM Treasury:-

17-Oct-2013 1¼% Treasury Gilt 2018  5,224.8720 Million
08-Oct-2013 0 1/8% Index-linked Treasury Gilt 2019  1,786.2500 Million
03-Oct-2013 2¼% Treasury Gilt 2023 4,399.5340 Million

When you add the cash raised:-

∑(5,224.8720 Million + 1,786.2500 Million + 4,399.5340 Million) = £11,410.66 Million
£11,410.66 Million = £11.410 Billion

On another way of looking at it, is in the 31 days in October HM Government borrowed:-

£368 million each day for 31 days. We are fortunate, while the global banking and financial markets still has the confidence in HM Government to buy the Gilts. The budget deficit keeps rising. What is also alarming, is the dates these bond mature, 2018, 2019 and 2023. All long term borrowings, we are mortgaging our futures.

Prudential PLC

Prudential PLC is a UK insurance and savings financial giant.

In the US, it owns Jackson National Life, in the UK it also owns M&G Investments.
Also a huge presence in Asia.

Looking at the annual report, some salient information can be obtained.


£405 Billion Under management, of this, £228 Billion is with M&G Investments.

Insurance premium income are broken down into three regions
45% Asia
35% US
20% UK

Yes, Asia is nearly half the business.
Indonesia, Hong Kong, Singapore, Malaysia, the Philippines, Thailand and Vietnam are the key markets.

4 Major Shareholders:

Legal & General Group plc of 3.99 %
Norges Bank of an interest in 4.03 %
BlackRock, Inc. of an interest in 5.08 %
Capital Group International Inc of an interest in 10.39 %

A Balance Sheet of £310,253 Million = £310 Billion in assets.

Real Estate / Property investments of £10,880 Million = £10.88 Billion

Dividends to shareholders £747 Million.

The man from the Pru, is huge.