Invest in Iraq's Development

           For the last decade, Iraq has been afflicted by economic instability, war, and political uncertainty.  Today, a new era is dawning in Iraq as the country begins to rebuild and remake itself.  Much like Russia in the early 1990s, modern Iraq is in its infancy.  Russia seemed off limits to savvy investors for its similarly unpredictable investment environment.  Despite an occasionally bumpy transition, the RTS index has risen ten-fold since the mid 1990s. 

            There is good reason to believe Iraq can imitate Russia’s success.  It is expected to be one of the fasted growing economies for the next several years in terms of GDP.  The Iraqi Stock Exchange (ISX) remains one of the most undercapitalized in the region.  Several expected IPOS on the ISX promise to increase total market capitalization as early as this year.  Investors willing to bear some risk are now faced with a very similar opportunity to invest in the early stages of a resource rich country’s modernization. 

            A good part of Iraq’s growth story will come about through its underdeveloped oil reserves.  Decades of conflict have left Iraq with as little as ten percent of its oil reserves explored.  It is estimated that Iraq’s total reserves match those of Russia and Saudi Arabia though the total stock of market capitalization only 1% of these two counties.  This underdevelopment offers a window of opportunity for investors to get in early and ride the wave of market capitalization once Iraq’s known oil reserves are effectively exploited.  The process of putting these vast reserves to work has already begun as revenues from oil production have recently begun to rise. 

            Investing in Iraq is a long-term investment.  Interested investors should have a 3-5 year horizon on their investment and recognize the nature of their investment.  Investments will seek to benefit from Iraq’s general economic development, the growth of the ISX, and the development of its large oil reserves.  Investment funds are aided by local independent managers responsible for allocating capital in Iraq and to foreign companies associated with Iraq.  This allows a fund to be well diversified in order to hedge against risk and more thoroughly invest in Iraq’s economic development.     

            Just like the opportunity that Russia in the 1990s presented investors, Iraq has its share of risk.  Funds seek to minimize risk by thorough diversification across sectors in the Iraqi economy but risk is an ever-present challenge to investors in such a market.  It is a well-known general observation that risk and potential reward can be strongly correlated but investing on such sentiment is hardly sound practice.  The Iraqi economy can be precarious, as Russia’s was during its development, but it has nowhere to go but up.  High-risk investment in Iraq is not an instance of gambling but of recognizing the real potential the country has to develop quickly in the new post-war environment.  Headlines about isolated violent incidents and political infighting can and do affect the weekly fluctuations of the ISX.  Such stories cannot, however, eclipse the biggest story in post-war Iraq: development.  

            Off limits to American investors, Iraq can add an important element of high risk/return and long-term outlook to a Russian portfolio.  Funds and investment products are available to provide investors access to Iraq’s growth.  Interested investors should consult with their financial advisor about the risks and potential returns offered by Iraq.  

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Инвестиционный фонд воды – годовая доходность 10%

На нашей планете именно вода является самым значимым и самым существенным поддерживающим жизнь веществом. Кроме того, именно расход воды – это самый критический критерий оценки экономических и промышленных проектов. Например, компаний использовала в 2010 году почти 300 миллиардов литров воды для того, чтобы произвести 130 миллиардов литров своего продукта.

Ежегодная оценка мирового рынка водных продуктов и услуг уже приближается к показателям, находящимся близко к уровню 500 миллиардов долларов. Причина заключается в шестикратном росте потребления воды в течение 20-го столетия, в то время, как численность населения Земли за тот же период выросла лишь вдвое.

Один весьма интересный иностранный «водный» инвестиционный фонд, использующий в своей работе как долгосрочную, так и краткосрочную инвестиционный стратегии, занимается финансовым управлением в данной специфической области с 1999 года, демонстрируя устойчивую годовую доходность в 10%.


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Опять Золото

Золото восстановилось в цене после резкого падения в конце года, вызванного вялым спросом китайских и индийских покупателей на банковские распродажи золотых активов. С тех пор стабилизация индийской рупии возродила доверие к этому рынку, а процесс поиска банками заемных средств замедлился, в результате основные поставщики оборотного капитала подтвердили свою приверженность к ультра- адаптивной кредитно-денежной политике.

На этом фоне золото открыло год лучшими показателями с 1980 и выросло на 11% за январь после первого за три года негативного квартала.

Ключевым событием для рынков и, в частности, для цены золота стало заявление, сделанное представителями Федеральной резервной системы США в конце прошлого месяца о том, что процентные ставки могут сохраняться на текущих низких уровнях вплоть до 2014 года. Перспектива сохранения высоких цен на золото обеспечивается устойчиво-низким уровнем процентных ставок, высоким уровнем госдолга развитых стран, дерегуляцией золотых рынков стран с быстро растущей экономикой, что подкрепляется сохранением мнения лавирующих центральных банков и частных инвесторов, о золоте как о надежном убежище активов.

Готовность к риску способствует восстановлению позиций акций компаний, занятых в секторе ценных металлов, после неудовлетворительной доходности. Акции золотодобывающих компаний показывают хорошую динамику, несмотря на падение спроса в конце 2011. На фоне прогнозов компаний об увеличении операционных и капитальных затрат в 2012, ряд компаний демонстрирует прирост свободных денежных средств и хорошие балансовые показатели. Этот сектор по-прежнему характеризуют исторически-низкие уровни стоимости инвестиционного портфеля, что гарантирует привлекательные инвестиционные возможности.

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Botswana: Growth and Stability in Africa

              Botswana has had one of the world’s fastest growing economies for the last 20 years.  The IMF has estimated that Botswana has had an average GDP growth rate of 9% since 1969.  With 85% English literacy, membership in multiple trade agreements, and a border with Africa’s most established economy, South Africa, Botswana is well equipped to continue its consistent export-oriented growth into the future.  As a potential target for investment, Botswana offers many possible opportunities. 

           

            The political climate in Botswana is one of the most stable in the developing world.  The government, ranked by Transparency International as one of the least corrupt on Earth, has held free and fair elections since its independence in 1966.  Prudent fiscal policy has given Botswana the highest sovereign credit rating in Africa.

            The government of Botswana recognizes the importance of foreign capital to its sustained growth.  With minimal bureaucratic interference, low corporate taxes, and low taxes on dividends, Botswana ranks as one of the most economically free nations in the world according to the Fraser Institute’s index of economic freedom.  The constitution even explicitly prohibits the nationalization of private firms.  Recently, the government abolished foreign exchange controls, allowing portfolio investment in the growing Botswana Stock Exchange.  Foreign investors are allowed to fully repatriate profit, investment, and capital gains without withholding taxes.  Additionally, Russia and Botswana have a double taxation agreement.

            Botswana’s current largest industry is mining.  It is the world’s foremost producer of diamonds and gem quality stones.  The structure of the economy, however, is undergoing a transition toward a more diverse composition.  Agriculture and manufacturing are growing in importance.  Botswana’s cattle industry is responsible for providing both processed meat to South Africa and leather to European automakers.  Membership in various trade agreements allows local textile firms to import materials from anywhere in the world and export duty and quota free to South Africa, Europe, and the United States.  The country’s membership in the South African Customs Union gives its businesses free access to the Atlantic Ocean through neighboring Namibia. 

            Botswana also has a well-developed tourism industry.  The growing worldwide interest in “ecotourism” has made Botswana a major destination for African tourism.  In addition to the country’s natural beauty, Botswana offers visitors an unparalleled degree of personal freedom and security relative to other sub-Saharan countries.  The official language, English, opens the country to visitors from the wealthy English speaking world.  Botswana’s tourism industry currently focuses on low volume, high cost tourism, leaving opportunities available for expansion and development. 

            Criticism has been launched against Botswana regarding its productivity.  Total Factor Productivity, an aggregate measure of capital and labor productivity, ranks Botswana below well performing middle-income countries.  A report by the World Bank attributed this problem, among other factors, to domestic firms’ access to subsidized, public credit.  Taken in the aggregate, the imbalance between subsidized and unsubsidized loans does pose a genuine problem for the economy.  Aside from the somewhat unfair comparison to middle income countries the World Bank cited, private foreign investors can sidestep this potential hurdle.  Investing in a country does not mean literally placing a bet on its economic indicators.  As with any other investment, investors in Botswana must consult with their financial advisor and look at the fundamentals of a particular firm or industry before investing. 

Botswana is still a developing economy and faces challenges just like all developing economies.  Compared to similar countries in Africa and around the world, Botswana is off to a very strong start on its path toward development.  Investors looking to find new opportunities in emerging economies should talk to a financial advisor about investing in one of Africa’s most successful economies.        

           

           

                    

  

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Investing in Gold

Quality and Certainty

During the first months of the financial crisis, the price of gold began its infamous rise to nearly $2,000 an ounce.  Investors looking for a safe haven as the global economy collapsed found a natural safe haven in gold.  As an asset class, gold has a long history as a dependable hedge against market volatility.  Backed by its own intrinsic value, gold does not depend on a central bank or a stock exchange.  It is relatively supply inelasticity gives investors in gold a greater degree of certainty than investors in other precious metals.   

Gold, however, is much more than a safe haven asset.  Recent research shows that having 5% to 10% of total investment in gold is an effective contribution to a well-diversified portfolio.  It is a prudent investment during times of both inflation and deflation.  Given the precariousness of the current world economy, gold provides investors with stability even if with a slight negative return.  There is much to suggest, however, that the price of gold will continue to climb in 2012. 

Inflation Hedge

In a recent statement, Federal Reserve Chairman, Ben Bernanke, announced that the Fed would continue its zero interest rate policy through 2014.  The announcement comes after last fall’s “Operation Twist,” an FOMC action that has flattened the US treasury yield curve and lowered long-term government bond yields.  The Fed’s balance sheet enlarging “quantitative easing” program has the potential to resume in 2012 according to one prominent Fed official. 

        

Although some analysts are quick to dismiss concerns inflation by citing sluggish growth in the supply of the world’s reserve currency, it should be noted that inflationary episodes in economic history occur after a delay of several months or years from the time that new money has been made available by central banks. 

       

“New dollars” created during quantitative easing have been largely confined to the US securities market, as recently overleveraged banks are hesitant to lend to businesses and consumers despite low rates.  Thus while real CPI inflation has yet to materialize, the potential for inflation has been laid by the Fed’s balance sheet expansion.  Commodities excluded from the CPI (e.g. food, energy, metals) have already been rising since the monetary expansion began.    

Long-term Security

In addition to serving as a hedge against inflation, gold tends to gain value during inflationary periods.  This potential for future inflation to place upward pressure on the price of gold has one reputable analyst forecasting that gold will break through the $2,000 per ounce ceiling in 2012.  Four years into the economic slowdown, the flight to quality, which originally supported the price of gold, has given way to a steady growth in value driven by monetary policy. 

          Generally, when the price of gold rises in response to monetary phenomena, it maintains its value.  In this sense, the price of gold can be viewed as a ratchet, increasing consistently without major drops.  While the potential for major gains in gold is relatively low, excluding the unlikely case of a mass flight to quality, the potential for major losses is very low.  Given the uncertainty surrounding the sustainability of current market growth, gold promises to reduce the risk exposure of an investment portfolio. 

How to invest

There are many ways to diversify a portfolio by investing in gold.  Investors can purchase physical gold coins, bullion, certificates, stock in gold mines, or gold backed ETFs to name only a few common methods.  Additionally, gold funds and structured products are available to meet investors’ specific needs.  Potential investors with questions about how to make gold a part of their portfolio should talk with a financial advisor about the best way to begin investing in gold.        

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Buffett on stocks

I believe stocks are “the runaway winner” over bonds and gold, and “will be by far the safest” investment in the long run, said Warren Buffett in Fortune. He considers bonds such dangerous assets that they “should come with a warning label.” They’re tied to interest rates that are so low right now that they can’t even cover losses from inflation and taxes.

His take on gold is enlightening, also. According to Buffett, investors should avoid gold, which will “never produce anything.” It’s far better to invest in companies or farmland, both of which actually create new wealth. All the world’s gold, melded together, would form a 68-square-foot cube, worth about $9.6 trillion. Would you rather have that cube, or its dollar equivalent: all the cropland in the U.S., plus 16 Exxons (the most profitable company in the world), with $1 trillion or so left over? We think the choice is obvious. So doesn't Buffett.

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Farmland: Strong Fundamentals and Good Prospects

What attracts investors to farmland? In a word, fundamentals. Rising food prices driven by expanding populations and the increasing wealth in emerging-markets have caught the attention of investors. Consumers in developing nations increasingly have the income necessary to purchase beef, poultry, and other similar products. This has placed a considerable strain on the global agriculture infrastructure, as these food products take more land and other resources to produce the same amount of calories than traditional crops, such as wheat and rice. As a result, the value of farmland has strong underpinnings many expect will hold for the long term.

Another draw is the prospect of inflation. Although farmland is considered an illiquid investment, it is also viewed as a safe haven because of its history as an inflation hedge. Recent economic and geopolitical events have led investors to seek so-called “safe-haven assets” as a means of protecting their purchasing power from the dual ravages of inflation and asset-price depreciation. Investors rely on such assets to provide strong and consistent returns regardless of the inflationary and economic environment.

In the past, Treasury bills, precious metals, and other commodities have been considered safe havens. However, more recently, they have failed to provide all the necessary characteristics. Although other assets have some of the characteristics, few can match the ability of farmland to deliver strong returns in times of economic growth and contraction. Furthermore, the tangible nature of farmland and its role as a productive asset are two factors that combine to make the investment unique among all safe-haven opportunities.

From 1992 through 2011, total returns for the US National Council of Real Estate Investment Fiduciaries Farmland Index shows only one negative quarter. For this reason, an additional benefit to investing in farmland is that it is not as volatile as other vehicles. With only one exception, farmland returns have been consistently positive.

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