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 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 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

This from Taipan Publishing’s Emerging Markets blog:

Consolidation comes in many forms… Buying up assets or operations, buying stakes in operations or companies, merging operations, takeovers, the list goes on and on. But one thing that has started gaining interest in the mainstream media is exchange consolidation.

Remember last summer when the Chicago Merchantile Exchange bought the Chicago Board of Trade? Or when the Group decided to by Nymex the following March for $11 billion? Or when NYSE Euronext bid for AMEX? When Nasdaq wanted to buy London and the OMX?

These merging markets offer considerable cost savings, a uniform platform, and an ease of cross-transactions that could ultimately create a “flat world” of international trading.

This behavior is starting to trickle into emerging markets as regional stock exchanges gain market capitalization and foreign interest. For example, Wiener Börse, operator of the Vienna stock market, just announced that it would buy the majority stake in the Prague Stock Exchange.

The deal is worth about $264 million, and Wiener Börse beat out other regional rivals, like Deutsche Boerse and the OMX Nordic Exchange. The Warsaw Exchange, Wiener Börse’s main competitor, was kept out of the bidding process because it’s a state-owned business.

But this isn’t the first market Vienna’s gotten its paws on…

Back in May 2004, it bought 68.8% of Hugary’s Budapest Exchange. Then a whole network of exchanges emerged. “Wiener Börse boasts partnerships with eight exchanges in Southeast Europe (Bucharest, Zagreb, Belgrade, Sofia, Sarajevo, Montenegro, Banja Luka and Macedonia),” says the Web site.

The Warsaw exchange has signed co-operation agreements with the National Stock Exchange of Lithuania and cross-access agreements with London and Euronext.

Of course, some people will contend that this is a form of monopoly in the making… That no good can come from a few powerful holders of so many international markets. And they have a good point. But the difference may just be that these co-operative markets will allow money to flow all over the world more easily at a much faster rate.

Are there downsides? Of course.

When I spoke to one of Vietnam’s sharpest fund managers back in April, he spoke about the ease of moving money around. He said, “Think about it. If money can flow into a market very easily, it can flow back out just as easily.”

So it’s a two way street. That’s a given…

But for new markets just entering the world stage, the pros outweigh the cons.

We’ll probably see more of these merging markets. As international investors, you should be seeing easier ways to invest across different exchanges.

Source: Merging Markets: The Buy-Up of Bourses

This from Taipan Publishing:

In my last post, I noted that Krakow was “under construction.” Well, I’d like to extend that to more than just the city. There was barely a road I travelled on that wasn’t coned off and rerouted for some kind of improvement. And one of the reasons Poland is spending so much time updating its infrastructure and roads is to become more attractive to foreign investors.

On one stretch of highway, I saw two major manufacturing plants: BASF (BAS:Frankfurt) and Daewoo (004550:Korea).

Interestingly, the Slovak roads are in much better condition. Investment is still going strong, though, and one major private investor is expanding a huge resort here in the High Tatras, in the Pieniny National Park.

Now, that brings up an interesting point to growing so quickly…

And sometimes, fast growth comes at the cost of quality. Take the Czorsztyn-Niedzica-Sromowce Complex for example. This is the dam provides only half the electricity it could have had it been built right. It was finished in 1994 and has a capacity of 160 million kWh of generation a year. That’s less than what Rhode Island uses in a month…

But Slovakia is certainly breaking away from the past, and it’s financial markets are trying to do the same. The SAX Index on the Bratislava Stock Exchange (BSSE) has climbed 3.54% in August, year over year.

That said, investors considering the Slovak exchange need to be extra dilligent. The BSSE has three different markets: the main listed market, the parallel listed market, and the regulated free market. It gets a bit confusing, and to top it off, most investors aren’t looking at companies… They’re looking at debt.

Also, as the first half of the year has been extremely scary for the rest of the world, the same goes for Slovakia, too.

If you’re interested in looking further at how the market has performed, check out the Semi-Annual Fackbook 2008. Lots of great information there. I’ll be digging through it for the next few days to see if there are any gems worth taking a closer look.

As of now, a better bet might be to look at the international companies investing in the area. Of course, technology and electronics companies are flocking to this region, like Canon (NYSE:CAJ), Ericsson (Nasdaq:ERIC), and Motorola (NYSE:MOT), and automanufacturing is also a big sector. You’ll recognize names like Nissan (Nasdaq:NSANY), Renault (Paris:RNO), Volvo (OTC:VOLVY).

With the euro coming in January, 2009, this place is on the tip of a lot of people’s tongues, and investors already have their ears to the door.

Source: International Investing: Crossing Borders