Why Are India ETFs in a Rut?

After a stellar year, India ETFs are lagging the broader market as economic problems weigh on the country. Though this might just be a short-term phase that will run its course, you’ve got options.

The recent weakness in India’s economic growth may just be temporary since the potential for monumental growth is still there, says Ron Rowland for Money and Markets. But right now, it’s got problems:
The biggest threat to India ETFs is inflation. It is especially evident when taking a look at the rise in India’s food costs since a large proportion of income for the pool of low-income workers is mostly spent on food.
Analysts cite that the macro-economic conditions and negative political sentiments do not favor the Indian equity market. High inflation, increased crude prices and a series of corruption scams are the main reasons behind the negative outlook for India.
A lack of infrastructure and a large population in dire poverty has been and remains a sticking point. It’s said that infrastructure problems cost India quite a bit in GDP growth.

That’s not to say India isn’t trying to deal with its issues. India’s Central Bank has taken steps to increase interest rates to bring down inflation, but stocks, more notably India’s bank stocks, are also declining, as well.

According to The Economic Times, a recent survey of fund managers conducted by Bank of America Merrill Lynch reveals that rising risk in emerging markets and the recovery back at home is bringing investors back to developed markets from emerging economies, with India as the least preferred investment destination in the Asia region. Ouch.

Rowland notes that this is only the effects of a natural economic cycle and India’s economy will be back on its feet.
iPath MSCI India ETN (INP). INP is an ETN, not an ETF. Share creation has been suspended for some time now, so watch the net asset value when trading.
WisdomTree India Earnings (EPI). EPI is a fundamentally weighted large-cap ETF; its largest allocation is to the financial sector, which accounts for 22% of the ETF.
PowerShares India (PIN). PIN is another large-cap India ETF. If you’re concerned about Indian banks, this fund may be a good option; it has a less than 10% allocation to the financial sector. One-quarter of it is exposed to the energy sector.
iShares S&P India Nifty 50 (INDY). INDY is newer and less actively traded than EPI or PIN. Financials and technology are the top sectors, with a 25% and 17.6% allocation, respectively. The 12.7% allocation to consumer staples can be a good way to play India’s powerful consumer base.
EGS Indxx India Infrastructure (INXX). INXX focuses on physical infrastructure spending. With all of India’s infrastructure woes, there’s a great opportunity and room for growth here.
Direxion Daily India Bear 2x (INDZ). INDZ is for those who believe that India’s markets will drop further, but do be sure you understand how leveraged and inverse ETFs work before diving in.

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Is Apple the 'Short of the Century'?

Former Wired columnist and CEO of ADVFN Clem Chambers came onto CNBC Friday and called Apple (AAPL) the short of the century. The main premise of his argument is that Apple is a large cap stock and should be valued like other large cap companies. He says,

If we value this company (Apple) as a normal large cap company, it should trade at $200 a share and no more.

He goes on to say that other large cap names within the sector trade at a 14 P/E while Apple trades above a 20 P/E ratio. Chambers argues that Apple's chart is a huge bubble, that Apple cannot function without Steve Jobs, and that "the dynamic with apple is everyone expects this story continue. One hiccup and the stock is back down to $200 a share." You can see his segment here.

Well...this guy is going to be unpleasantly surprised when he sees the stock trade at over $500 sometime within the next year. Apple has proven time and again that it can survive just fine without Steve Jobs. And while Apple does trade at a slight premium to other large cap companies, it does grow at 3-4 times faster than those companies. If anything, the stock is very undervalued at these levels. It only trades at a .77 PEG ratio which is far below par on its 5-year expected growth rate.

By contrast, Intel (INTC) trades at a .87 peg ratio, IBM (IBM) at a 1.14 peg ratio, Hewlett Packard (HPQ) at a .83 peg ratio and Google (GOOG) at a .99 PEG ratio. If anything, these companies are trading at a richer valuation to their expected growth rates than is Apple. While it seems somewhat insane to call Apple overvalued at these levels, it shouldn't come to a surprise to see people start to jump to that conclusion when looking at Apple's market capitalization.

I warned this past summer that Apple watchers would start to make sweeping valuation arguments based exclusively on its market capitalization. Clem Chambers targeted Apple's large market cap. as the main thrust underlying is "Apple is overvalued" thesis and don't surprised to see a lot more people make that argument as Apple marches to $500 and beyond. In the future, I'll be putting together a thorough analysis justifying a $500 price target. Stay tuned.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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The Top 3 Ways to Play Uranium

Uranium prices have gained more than 70% from their recession bottom. And that's only the beginning.

The element is bracing for a super-surge, and we've found three ways to profit from this uranium bull market that could continue to rise through the rest of the decade and beyond.

Uranium is heading back toward its historic highs. And prices could still double before they reach pre-recession levels. That's a potential 100% gain, or more, if prices continue to increase. And they will.

Global superpowers are fast-tracking nuclear energy and combing the globe for more uranium. And hundreds of nuclear reactors are being designed and built as you read this.

Alone, that's enough to drive uranium prices higher. But it's not the whole story.

Since the late 80s, the world has been making do with a deficit of mined uranium. Present mining projects only provide enough fuel for about 70% of demand. The other 30% has been coming from enriched uranium stockpiles and former nuclear weapons. That means prices have been artificially low going back as far as the end of the Cold War.

But these stockpiles and the glut of decommissioned nuclear weapons currently used to make up the mining shortfall are both running out. And supply isn't ramping up fast enough to cover the coming shortfall in fuel.

In this report, we will uncover the truth behind the coming uranium bull run and detail three ways investors can profit as uranium prices really take off.

Fact #1: The world's superpowers are zealously fast-tracking their nuclear energy agenda. According to the World Nuclear Association, a new nuclear reactor will start up every 5 days by the year 2015.

Countries like the U.S. and Japan are developing new nuclear power plants to generate energy at lower costs than traditional fossil fuels and to curb the emission of greenhouse gasses.

Unlike oil and coal, nuclear energy emits zero carbon dioxide. And while wind and solar technologies are still wearing their training wheels, nuclear energy has a proven track record of performance. Not to mention it is the most potent and efficient source of energy among its peers.

Countries like the U.S. and Japan are opening new plants to deal with stricter emissions legislation and support their energy needs. At the same time, emerging economies, like China and India, are turning to nuclear power as a solution to their sharply increasing electricity requirements.

A look at the numbers gives little doubt.

China has 13 operating nuclear reactors. And in the last year alone, the Chinese government approved plans to build 34 new plants.

India wants to quadruple its nuclear output in the next 10 years.

Japan is planning another 14 nuclear power plants. Russia wants 16 up and running by 2015.

And here's perhaps the biggest surprise: The United States leads the world in nuclear energy production with 104 active reactors and plans to build as many as 24 more.

Fact #2: There's one problem - We're running out of uranium! The world is parched for uranium. All totaled, the world's nuclear reactors use about 69,000 tons of uranium every year. But only 51,000 tons are mined every year. Many reactors are running at 50% capacity. Some have even been taken off-line.

In the United States, the bulk of the uranium used in reactors doesn't even come from uranium mining. It comes from the approximately 20,000 Russian nuclear warheads. The uranium from these nuclear weapons is enriched and sold to the U.S. as part of a 1987 disarmament agreement.

The "Megatons to Megawatts" program has helped make the United States the world's largest producer of nuclear power.

But the program is running out of nuclear warheads to convert, spelling the end of guaranteed access to uranium supplies for U.S. nuclear reactors. When the warheads dry up, the U.S. will have to import more uranium to satisfy its needs, and by then, domestic and global demand will be significantly higher.

Fact # 3: This is perhaps uranium's buying opportunity of the century. Uranium prices rocketed an astounding 1,625% before 2008. Whenever the price of anything moves that fast, it's bound for a correction. But that correction happened to coincide with the start of the worst recession since the Great Depression. It caused the bottom to fall out of uranium prices for the next two years.

But all uranium traders needed was a whiff of an economic recovery to send prices back up. Let's be clear, the current uranium surge won't be a rocket ride. This isn't a speculative frenzy that's going to drive uranium prices far above supportable levels just to let them collapse again. This is the basic economics of supply and demand. Currently, there isn't enough uranium supply to meet the growing global demand.

Unlike most commodities in today's unsteady market, uranium will be the one that rises noticeably - but steadily - over time. And that's not a maybe. That's a definite.

Energy companies know supplies will tighten. They know the current uranium mining industry is wildly volatile. They know uranium prices are a bargain now. That's why they're already paying a premium on current prices to lock in uranium now. And smart investors are following suit now before the price moves any higher.

Action to Take:

For a pure play uranium buy, take a look at Cameco Corp. (NYSE: CCJ), one of the world's largest producers of uranium. It's also the world's largest and most liquid uranium miner. And the company plans to double its uranium production, to 40 million pounds, by 2018.

This company is a leader, and its size ensures it will remain on the forefront of the uranium boom. And as an added bonus, Cameco maintains an impressive annual and quarterly dividend for investors.

If safety and diversification are more to your liking, then Rio Tinto PLC (NYSE: RIO) and BHP Billiton Ltd. (NYSE: BHP) are attractive options.

BHP Billiton is the second-largest commodities company in the world - mining steel, aluminum, copper, iron, nickel, titanium, diamonds and gold. BHP's connection to China and their ownership of the world's largest uranium deposit, the Olympic Dam in Australia, makes them a big player in the upcoming uranium boom.

Rio Tinto is the third-largest mining company in the world. One plus is that this company is already selling uranium to mega consumer China. In the future these ties may pay off in a big way.

Rio owns 68% of the Ranger Mine, which has produced more uranium than any other mine in Australia over the past 10 years, and nearly 70% of Namibia's Rossing mine, the world's longest running open pit uranium mine and also an exporter to China.

These are the best uranium plays right now, but as time goes on, uranium demand is sure to open the doors to new streams of income for investors. And we will be first to let you know where to find those opportunities.

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South Korea: Emerging Market Exposure at a Discount

When we hear about gaining exposure emerging markets, most people immediately think of the BRIC countries (BKF). That should make sense, right? Well, not really since the MSCI lists a total of 21 emerging market countries, while the Dow Jones lists 35 emerging market countries. The takeaway here is that there are more than four emerging market countries.

Still, we can’t blame the average investor for not knowing more since so much media hype over the years has been focused solely on Brazil, Russia, India, and China. In our personal opinion, the emerging market with substantial economic trade ties to all the big names which remains under the “media radar sweep” is South Korea.

There are three primary reasons why iShares South Korea ETF (EWY) is the “smarter” way to gain diversified exposure to emerging market gains without buying a hot BRIC name at a premium.
Economic Trade Dumping in China


South Korea is thriving economically by dumping billions of dollars worth of products into China, plain and simple. According to the National Bureau of Statistics China for 2008, South Korea exported $112.14B worth of trade to China while China, on the other hand, only exported $73.93B back. We can see that this looks eerily similar to the lopsided US-China trade relationship, but in reverse.

This makes South Korea the 4th largest trading partner with China. Take out Hong Kong (EWH), which for some reason is listed as a “separate economic entity” by the National Bureau of Statistics China, and South Korea becomes the 3rd largest trading partner in the world for China. The takeaway here is that South Korea has tapped into the fastest growing country in the world and is now reaping the benefits.
America Loves to Buy Cheap Products

America is still arguably the largest consumer market in the world. There is no question that America loves cheap, somewhat reliable products and South Korea is more than happy to satisfy the endless demand. For 2008, the United States Census Bureau listed US imports from South Korea at $48.9B, while only exporting back $38.8B.

In absolute terms, the US has much larger trading partners, including Canada and China, but in relative terms, there exists another trade imbalance which South Korea uses to its benefit as an emerging market. South Korea, as an emerging market, continues to be in a “long-term macro growth phase” due to trade imbalance relationships like these. We feel that South Korea can and will continue to grow a wider export imbalance with the largest consumer discretionary market in the world.

An Unnoticed Relationship of Economic Love


Any relationship must involve giving and taking, because that provides a healthy balance. Well, when it comes to the EU-South Korean trade relationship, South Korea insists on being more of a giver than taker. Currently, the EU makes up the largest portion of global GDP, according to the 2010 List by the CIA World Factbook, and South Korea has taken notice of the fact. On October 6th, 2010 the EU-South Korea Free Trade agreement was signed into approval in Brussels. This now makes South Korea the EU's 8th largest trade partner. Now, when looking at the trade balance between these entities for 2009, we find that South Korea exported $32B in goods to the EU while it only sent back $21.5B in product.

In addition, European companies are on average the largest foreign direct investors in South Korea and account for roughly 40% of the total FDI. There is little question that South Korea has definitely created a very “special” and lucrative relationship with the EU (ETFs: IEV or EWG).
Conclusion

While ETFs for China (FXI), Brazil (EWZ), and the overall emerging markets (EEM) are often referred to as the “best” names for investing, we find one common but crucial issue with them. All these hot names remain very dependent on one or two key trading partners to keep their current rates of growth. On the other hand, South Korea has created a diversified portfolio of large trade partners, holds a favorable trade relationship with each of them, and is likely to keep on providing sound growth with less risk relative to other emerging market options.

This is why we feel the South Korea ETF (EWY) is the quieter “alpha seeking operator” for emerging markets and is a sound BUY for now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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The Federal Reserve Vs. The Budget

Ben Bernanke does not like deficits and increases in the national debt. He also believes that the economy needs to be stimulated which is why he continues to maintain his faith in QE2.

The new Budget is not likely to pass Bernanke’s test. The deficit this year will be $1.6 trillion, to some extent because of tax cuts. Next year it will be $1.1 trillion. The national debt will rise by $7.2 trillion over the decade which the Budget forecast covers.

The tension between the Fed and the Budget cannot be seen more clearly than in a recent presentation by NY Fed chief William Dudley. He expresses only modest optimism about the recovery. The “headwinds” that face GDP improvement have hardly abated. Job creation of the sort that the Budget assumes may not be attainable.

Dudley remarked in his Quarterly Regional Economic Press Briefing. ”The decline in the jobless rate was not an unmitigated positive, as a significant part of this decline was due to fewer people looking for work.”. He added:

As banks and other financial institutions seek to strengthen their balance sheets and avoid future credit losses, they may keep credit conditions tighter than normal. In addition, many consumers’ borrowing options may be limited by their impaired credit histories, and the recovery is not getting the strong boost from home construction that most previous recoveries have benefited from,

Dudley did not mention economic challenges which are different from those raised by Fed members who support QE2 hundreds of times. He did say he could not be sanguine about resolutions.

The Fed’s view of the economy expressed through the comments by Bernanke and Dudley are part of the publicity campaign to promote the central bank’s $600 billion bond purchase program. Just because it is part of that agenda does not mean it is anything less than an accurate assessment of America’s economic problems.

Dudley looks at a future, at least in the near term, where the glass in half empty. The assumptions behind the Budget are based on a glass that is nearly full.

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