I first told you about this merger, which would consolidate company operations, back on May 8, here on the Emerging Markets Blog. The BBC reports that VW is suspending talks with Porsche saying that, “constructive negotiations were not possible at the moment.” Porsche has a significant amount of debt, and VW wants the luxury car company to reduce that debt. Ironically, Porsche took on about $12.2 billion in debt so that it could increase its stake in VW… The history between these two companies is long and complicated, and while VW says its backing away from the table, the two own stakes in each other and were founded by the same family. Porsche says the talks are still ongoing.

Source: VW/Porsche Merger Stalled?

The first sentence of a Reuters article on Brazil’s Carinval is certainly… attention catching:

The 10 million extra government-provided condoms are poised, final touches being put on huge floats depicting Queen Cleopatra and Can-can dancers, and the Barack Obama masks are flying off the shelves.

Would have liked to have known the name of the company making those condoms, eh? That extra 10 million is on top of the 45 million already provided at Carnival.

But even “bigger” news to investors like yourselves is the fact that one float’s dancers were wearing costumes costing $13,000… A PIECE! And this in a massive global financial crisis that has caused even some of the mining towns in surrounding Brazilian states to cancel their parades.

By all estimates, though, folks are spending less money this year, and Brazil expects about a 10% drop in foreign tourists to Carnival.

You wouldn’t know it by the looks of Rio, though. I like to have fun, as you’ve read in these pages before (underground pubs in Slovakia, or crazy futbol matches in Argentina), but some of the videos from this year’s Carnival seem… whew… a bit excessive even for my tastes!

Currently Brazil is a little out of favor with investment analysts. Last week, I told Taipan Insider readers that Citigroup thinks Brazil’s market is in for a slide, and that investors shouldn’t buy in until the Bovespa hits 35,000.

I also told them that I didn’t necessarily agree with Citigroup (NYSE:C).

Here’s the thing, though, that everybody does seems to agree on: Countries with strong commodity and cash reserves are going to be great markets on the far side of this financial crisis. The problem is, nobody can time when this crisis will end, or which companies will be around to reap the rewards.

For Brazil, there are a lot of choices, like Companhia Vale (RIO:NYSE), which was just downgraded today despite expanding its iron ore customer base in China…

That means RIO has secured more long-term supply contracts, and that’s a sign of longevity. Clearly something that investors should be looking at if they want to buy shares for the long run in this market.

If you are a member of any of Taipan Publishing Group’s publications, you can read my full article online.

Source: Viva Carnival, Viva Brasil

And not only here in the U.S., either.

France’s GDF Suez (GSZ:Paris), newly-formed energy group, and Spain’s Iberdrola (IBE:Madrid) just announced that they will join forces to build nuclear plants in the United Kingdom… As have German companies RWE and E.ON (EOA:Hamburg).

But friendly European countries teaming up to build nuclear power plants isn’t the only card in play. Nuclear energy is on the table in Russia, China, and Iran.

German company Siemens (SI:NYSE) is expected to partner with Rosatom in Russia to invest $45 million in a transformer factory. The two companies are hoping to partner on more projects, too, in both Russia and Germany, and also in other countries.

China is well on track to double its nuclear power capacity over the next ten years. In 2009 alone, the country expects to add 8.4 gigawatts-worth of nuclear power plants. In fact, China is investing about $84.8 billion in the power industry this year. Technology will come from “third-generation nuclear power technologies, such as the AP100 developed by the United States-based Westinghouse Electric Co,” said Fu Manchang, secretary-general of the Chinese Nuclear Society, to China.org.

With so much development on the nuclear energy agenda, it should come as no surprise that the geopolitical eye has once again fixed itself of Iran, and the posibility of its nuclear weapons program.

Today, representatives from five permanent member countries of the UN Security council met to talk about diplomacy and Iran’s nuclear ambitions. Yesterday, it became public that Iran had launched its first home-built satellite. This means that long-range weapons and the ability to fire ballistic missiles are fast becoming a reality.

This has folks a little edgy, as many people believe that if Iran gains nuclear weapons, and has the ability to fire long-range missiles, it might attack Israel.

But the UN Security council is encouraged by the new U.S. administration’s “willingness… to engage in talks with Iran.”

That won’t make the job any less hard, and if indeed Iran capitulates to every demand in order to pursue a peaceful nuclear energy program, would the UN Security council actually sanction the move? How can it not when China is pouring money into nuclear energy programs, and when Russia, our old Cold War enemy who is still dismantling its nuclear bombs, is partnering with Western companies to develop plants?

If we’re ready to negotiate, we’d better be ready for a nuclear Iran… even if it’s just to generate electricity, not bombs.

Source: Nuclear Energy Back on the Table

This from Taipan’s Emerging Markets blog:

Members of APEC, Asian-Pacific Economic Cooperation, ended their annual summits today in Lima, Peru. One of the main topics, besides the economic crisis, was free trade.

(By the way, APEC consists of member economies like China, Vietnam, the U.S., Canada, Russia, Peru, and Chile, among others.)

Free trade is a hot topic right now, with the dreaded “P” word floating about: protectionism. Protectionism is when governments restrict or restrain international trade. Most times the intent is to protect local markets from competition.

Like if the U.S. government says a tomato farmer in Mexico can no longer export his product to the States because its so much cheaper compared to an American farmer’s product.

The 21 leaders meeting in Lima have agreed to “avoid protectionist measures and keep trade free despite the economic climate,” reports the BBC. The members signed a final declaration backing free trade on Monday.

Free trade is only part of the equation, though, and governments have also agreed to support economic stimulus plans that will boost spending.

In fact, the APEC member governments are spending hundreds of billions of dollars on ways to stop the economic crisis, says the International Herald Tribune. Not all the cards are on the table, though, and there hasn’t been a clear-cut plan held up for the public’s eye. Not yet, anyway.

One thing is for sure… There will be a lot of international cooperation to spur investment and partner economies. For example, 40% of Chile’s exports went to the Asia-Pacific region in 2007. Mostly to China.

It’s no surprise that Chile was the first non-Asian country to sign a free trade agreement with China back in 2005. And China just last week signed an FTA with Peru.

These FTAs allow for easier, cheaper trade, which may ultimately keep some of these countries out of a recession.

By the way, we’ve just gotten a GDP report from Chile’s Central Bank. For the first nine months of 2008, Chile’s GDP growth rate was a brisk 4.2%. Now, that’s down from last year’s figure (at 4.7%), but still pretty darn good.

Next year, the country expects a bit of contraction, and only 2% to 3% growth, but that’s good enough to keep Chile out of a recession next year.

That’s also good enough to keep Chilean businesses fairly healthy.

Source: Investing in Latin America: Global Crisis Buffer

This from Taipan Daily’s Emerging Markets blog:

Right now, copper spot prices are an anemic $1.65 per pound. That’s an amazing drop from above $4 back in June.

And yet, one Chilean copper mine is actually expanding.

The mine is called Dona Ines de Collahuasi. It’s Chile’s third largest copper mine and is located in an historical copper mining area. Back in 1880, a large, high-grade copper and silver vein was found. It’s one of the world’s largest copper resources.

Right now, the mine produces roughly 440,000 tons of copper a year.

But the mine has just approved a $64 million project that will increase annual output by 30,000 tons. And that’s just the first expansion.

At the end of the first quarter of 2009, a $750 million expansion plan will boost production to 650,000 tons a year. After that expansion is complete, the mine intends to increase production to a full one million tons of copper a year by 2014.

That’s an astounding move.

And one that will need some major financial backers, particularly if copper prices don’t recover. It’s a good thing some big companies own this mine.

I’m talking about Anglo American (Nasdaq:AAUK) and Xstrata (LON:XTA), each with a 44% stake. There’s also a Japan’s Mitsui (Nasdaq:MITSY), owning 12%.

The CEO of the mine, Jon Evans, told the newspaper Diario Financiero, “The mid and long-term plans are the same, therefore our expansion plans are also the same.” Which may pay off in the long run… If it can survive depressed copper prices.

And copper prices have continued to fall, despite a huge cash injection by China to its economy. China is the largest user of many of the industrial metals, like iron ore, aluminum, zinc, and, of course, copper.

So with China’s economy slowing (albeit to 7.5%), the country will use less of those materials.

Now, China’s been part of the reason why copper prices had more than doubled since 2002. If Chinese demand continues to slow, that could mean a long time before we see copper prices begining to climb again.

Which would mean that Anglo American, Xstrata and Mitsui will have to wait for the returns on these major expansion.

But it would also mean that they’d be ahead of the game once things begin to turn around… If they can afford it.

Source:Copper: Chilean Investment Still Expanding

This from Taipan Daily’s Emerging Markets blog:

Late October, Brazil and Argentina announced that their governments would buy up private assets in financial markets.

Brazil’s plan would allow its state-controlled banks (Banco do Brasil and Caixa Economica Federal) to buy stakes in private financial institutions. Argentine President Cristina Fernandez de Kirchner announced that the government would take over the $30 billion private pension fund.

These announcements pushed Latin American markets well into the red, but they also knocked Spain’s Ibex index off 184 points, or 2%.

That should come as no surprise. Spain and Latin America have many economic ties, and some Spanish companies do so much business across the pond that 29% of net profits come from that region.

So when news of nationalization hit last week, naturally Spanish markets shuddered… With good reason.

Just look at Bolivia and Venezuela, both controlled by heavily nationalistic leaders.

Venezuela has had three major blackouts this year. Some areas spent more than two weeks without power at a time. Bolivia continues to buy up local and international stakes in its natural gas pipeline infrastructure, but it’s been shipping less than 50% of its contracted amount of natural gas to Argentina since September.

Problems like this led to a severe power crisis last summer, and forced Argentina to buy energy from Brazil.

So the question is… Will government intervention result in protection from global markets, or will pensioner and investors alike be holding worthless papers and wondering where all their money went?

And how will markets in both Latin America and Spain respond?

We know the first knee-jerk reaction was not good. In fact, after the news, Argentina’s main index fell 8.3%, Brazil’s fell nearly 7%, and Mexico’s dropped more than 4.5%.

And yet, markets started to rally back a couple days later… And get this: Spanish banks are posting jumps in earnings, thanks in part to their Latin American divisions. That flies directly in the face of what some analysts were saying last week after those nationalization announcements.

Let’s take a closer look.

Banco Santander (NYSE:STD), Spain’s largest bank, announced net profits from its Latin American units climbed 6% in the first nine months this year compared to the first nine months of 2007. And the group’s net profits rose a collective 9.1% for the past nine months, and 4.3% in the third quarter alone.

Here’s what’ll blow you away though… The bank’s third-quarter profits for Latin America clocked in at 1.12 billion euros (US$1.45 billion) – an all-time high for the group.

I know what you’re thinking, “Okay, those numbers are good, but it’s only a matter of time before bad loans and credit crunches catch up to these guys, right?”

Not quite…

You see, Spanish banks operate differently than other international banks. They chose not to buy any of the risky subprime mortgages during the banking heyday and the housing bubble.

Actually, one Spanish bank, BBVA Group (NYSE:BBV), who also posted good earnings for the third quarter this year (net profit is up 5.6%), even called U.S. banks “immoral” lenders.

Have non-performing loans (NPLs) increased? Sure… BBVA’s NPL ratio jumped from 1.2% to 1.5% and Santander’s ratio climbed to 1.6% from 1.3%. But get this… Santander’s loan coverage ratio is at 116%, meaning it has enough cash to cover those non-performing loans. BBVA’s coverage ratio is even higher at 127%.

These guys are at rock-bottom prices, and I consider both strong companies. Both have sizable dividends as well. Could they go lower? Yeah, maybe. We’ve watched these financially stable companies get halved over the past year, just for being in the financial business.

The IMF still maintains that Latin America will weather this storm… that countries are expected to deal with this current crisis better than previous crises… and that the region will grow 3% next year, which is close the emerging market average forecast.

It’s time to take a wide-angle, long-term view on growing markets with strong companies. That’s Latin America and these two companies.

Source: Latin American Investments: A Hot Bed of Opportunity

But here’s the thing. That 15% rise is overshadowed by the fact that its net income of $247 million is only half that from the previous quarter. The main reason for this drop? Lower net foreign exchange results.

This wierd fluctuation is seen in the company’s EBITA. This figure grew 101% year over year in the third quarter, but is down 11% from the second quarter.

Next quarter, the company expects further contraction in income, which doesn’t bode well.

These kinds of earnings reports are going to become more prevalent, I think… So long as major currencies continue to seesaw back and forth.

You see, most international exporting companies have to hedge themselves against their own currencies. But with the global mayhem shoving some denominations higher and knee-capping others, it’s obvious that some companies are going to be left holding the short end of the stick.

Argentina’s in that bracket.

(By the way, Argentina’s lower house of parliament has backed the government’s plan to nationalize the $30 billion pension fund. It will next go to the upper house, where it’s expected to quickly pass.)

As you know, I’ll be travelling to Chile and Argentina later this month.

It will be interesting to contrast the two countries. Chile seems much more stable at this point. As evidence, its state-owned copper company, Codelco, just reported that its Gaby mine is now at full production and will start to expand its capacity from 150,000 tons a year to 170,000 tons over the next two years.

Does Chile have problems? Yeah, sure… It’s Consumer Price Index jumped sharply in October, and the government expects to used $1.5 billion to help combat the global financial crisis.

But Chile is also enjoying lower oil prices and a relatively cheap currency, which is good for export companies.

On the whole, I expect Chilean companies to outperform Argentine companies. For how long? That I’m not sure about yet, but I expect to get some answers on my trip. You can follow me, by the way… I’ll be providing updates through Twitter and this blog. You can also sign up to receive a video of my travels upon my return.

Source: Mining Prospects: South American Mining on a Run

This from Taipan Publishing’s emerging markets blog:

As climate change and energy independence have headlined a number of events during the past two years of presidential campaigning, I’m happy to see alternative energy back in the investment ring.

Surprisingly, many top-notch European companies see the U.S. as a major growth region for the renewable energy business, and they are coming over in droves to set up shop.

Let’s take a look at just one of the technologies that’s already being employed around the world: wind power.

The U.S. is in bad shape compared to the rest of the world. Some of the world’s leaders in wind power, like Spain, Denmark and Germany, generate a significant percentage of electricity from wind. But even countries like Morocco and India generate a larger percentage of electricity from wind than the U.S.

Morroco gets 1.7% of its electricty from wind. India? 4.6%.

The U.S. gets 1.37% from wind, and that’s after record growth last year that saw 3,100 new turbines built in 34 different states.

Now listen to this: The Department of Energy released a 248-page report that shows how the U.S. can generates as much as 20% of its electricity from wind power alone… by 2030. Do the math and you’ve got a 1,360% increase from currend wind generation.

That means an additional 7,000 turbines a year will need to be installed over the next nine years if we want to meet this goal.

Guess what? That type of demand won’t be met by U.S. companies. General Electric (NYSE:GE) is already committed for the next few years with T. Boone Pickens’ wind farm planned for Texas.

No, folks… This demand will have to be met by international companies… Companies that have climbed amazingly quickly over the past two and a half years. In fact, seven different international companies have more than doubled since 2005.

(Note: That doesn’t include the global meltdown the world’s experienced over the past couple months.)

And many of these companies already have operations here in the U.S. and are looking to expand, sometimes into old manufacturing plants.

Like Spanish company Acciona SA (MCE:ANA) who plopped a wind turbine manufacturing plant in an old pump factory in West Branch, Iowa…

These investments have sparkes a wealth of more factories, like the small company that occupies an old Maytag factory making concrete towers to support wind turbines while TPI Composites built a brand new plant across the street and promised to hire 500 employees.

It’s revitalizing old manufacturing towns in what’s called “The Rust Belt.” These are places who saw manufacturing plants uprooted and moved overseas, or just closed down completely.

It’s a very interesting area for investors.

No matter what you think of either candidate for president, both have promised to curb our dependence on foreign oil and build jobs here at home. Both have promised more alternative energy investments.

Seems like a win-win for both investors and many of those European companies coming to the U.S. and building turbine plants.

Source: Green Investing: The New Industrial Revolution

This from Taipan Publising’s emerging market blog:

Last Tuesday, I told Taipan Publishing Group subscribers in Taipan Insider that one Middle Eastern country was injecting massive amounts of cash into international markets.

That’s not really news nowadays, though, is it? Everyone’s heard of the $7.5 billion Citigroup (NYSE:C) bailout by Abu Dhabi back in November 2007.

But things have noticably been slowing down. When billions of dollars worth of investments get halved in value in less than a year, it makes you think.

Yet for some regions, this credit crunch is an opportunity of a lifetime.

Think about it. You’re an oil-rich nation with foreign currency reserves well into the hundreds of billions. Major global institutions are searching desparately for cash. Their fellow financial institutions are equally cash-strapped.

Suddenly, your country has a lot of power.

Now, who knows how long global financial systems are going to be in crisis… who knows how long major markets are going to wallow at lows not seen in decades. You need to act, and act now to secure your new position as a “Global Player.”

That’s just what some countries, like Abu Dhabi and Qatar, are doing.

Instead of accepting a government bailout, UK bank Barclays (NYSE:BCS) is selling stakes to sovereign wealth funds in Abu Dhabi and Qatar.

These stakes are worth about $12 billion and they will up Qatar’s BCS holdings to 12.7% and Abu Dhabi’s holdings to 16.3%. And while this injection might keep BCS independent from its own government, it sure gives these Middle Eastern countries a big boost in global power standings.

(By the way, another UK bank HSBC (NYSE:HBC) opted not to take UK cash for a bailout. It says it remains one of the most capitalized and liquid banks in the world. But if it does become cash-strapped, I’ve a feeling it’ll tap China’s sovereign wealth fund, CIC for funds.)

So what does a move like this mean for those oil sheikhs with wads of cash burning a whole in the country’s collective pocket?

It means diversification away from oil (and the dollar).  The BBC reported last Sunday, “Shares in the oil-rich Gulf region have fallen back as investors worried about the impact of the global economic downturn on the region.” Meaning falling oil consumption.

But it also means power.

TAQA is one of Abu Dhabi’s smaller sovereign wealth funds with about $28 billion in assets. Peter Barker-Homek is the chief executive. He told the BBC’s Christian Fraser, “Abu Dhabi’s sheikhs are looking beyond the simple financial return: they want to become true global players… Part of our role is really to close the divide between east and west. The end state will be a company that we hope will be one of the top 50 global employers.”

That’s partially why Barclays has chosen to align itself with governments outside the UK. CEO John Varley told Business Intelligence Middle East, “There has been a significant shift in the availability of capital and economic power in the world over the last five years and we’re ensuring we’re aligned with those changes.

That includes, of course, the Middle East, whose sovereign wealth funds will own about 32% of Barclays once this funding deal goes through. (China and Singapore have stakes in the UK bank, as well.)

This could be the year of “Follow the Money” as sovereign wealth funds begin to snap up deals all over the world.

The price certainly looks right…

Source: Middle East Money Funds Busted Barclays

The first Burger King (NYSE:BKC) will open in Prague in the next few months. And it’s not only targeting the Czech Repbulic. It wants to become number one in European markets. To do that, it’s already got operations in Poland, Bulgaria and Hungary, and it planning joints in Slovakia and Slovenia.

But it’s got tough competition from McDonald’s (NYSE:MCD), who is top dog right now with 70 restaurants serving 53 million customers. It’s spent more than $172.2 million on restaurants in the Czech Republic.

When I was in Budapest, I grabbed a Whopper for a quick lunch before meeting my guide back at the hotel, Buro Panzio. It cost me 750 Forint, which is about $3.75 or so, and the place was packed. My last night in Budapest, I hit the town with some new friends, and ended up back at BK for a late-night snack. It was still packed, and one young, drunk, teenager was thrown out for misbehaving and bothering the customers.

It’s not your traditional Hungarian restaurant, of course. BK doesn’t have goulash on the menu… But I’d had goulash in nearly every country I’d been to on that trip, including the absolutely stunning Hungarian goulash at a nice little pub on the pedestrian Vaci utca.

Simply, the best.

So what’s my opinion of international fast-food joints in gorgeous old towns?

I don’t have a problem with it, so long as it blends… I mean, seriously, you don’t really want to go to the Astronomical Clock in Prague and see those nuclear-yellow glowing golden arches in the background, do you? It would spoil the picture.

Starbucks (NYSE:SBUX) has a place right off the Old Town Square. You wouldn’t know it but for the sign in the window. Blends right in. (By the way, I slipped in to use their bathroom, and it was really dirty. But it was free…)

So with demand on the rise – the Czech Republic is estimated to have about 13,000 food stalls and restaurants in the country – people will have to make room at the table for fast-food companies.

Source: Foreign Direct Investment: Prague Has It Her Own Way