Norway: Attractive Investment Destination

Among the Nordic countries, Norway's economy is strong and is well positioned for an economic recovery. In fact, Norway is one of the favorite investment destinations among European countries.

The Norwegian economy was able withstand the current economic crisis better than most other European countries since Norway's financial institutions did not invest in risky sub-prime mortgage derivatives and other instruments. The country is blessed with oil resources which has become a boon during the past few years when oil prices soared. As a result of this Norway's sovereign wealth fund is one of the largest in the world with assets of about £380B. As the fund has tremendous amount of cash reserves, the fund was able to pick high quality equities at dead cheap prices during the market crashes in the past few months.

In addition Norway has many advantages relative to other economies of the world. Some of the key points are:

• Norway is a surplus country with NOK 76 billion in current account surplus as of 1Q,2009
• GDP Growth rate for 1Q,2009 was the lowest at -0.4% seasonally adjusted when compared with other Scandinavian countries, UK, Europe and US
• Gross national Savings remain high in Norway at NOK 757 B at the end of 2008
• Households decreased their borrowing and increased savings in Q1,2009
• Government wealth stood at 144% of GDP at the end of 2007, the highest among Nordic countries
• In 2008, due to record high crude oil prices the trade surplus was the highest ever with a total of NOK 460.5 billion

Source: Statistics Norway
Note: 1 Norwegian Kroner = 0.15659 US Dollar

For US investors, there is not a single-country ETF for Norway. However there are a few stocks that trade in the US markets.

In the oil and gas sectors, there are four Norway ADRs:
Acergy - ACGY
Petroleum Geo-Services - OTC: PGSVY
StatoilHydro - STO
Teekay Petrojarl - OTC: TKPOY

Two other large Norwegian companies that trade in the OTC market are:
Telenor - OTC: TELNY (Mobile Telecom)
Yara International : OTC: YARIY (Chemicals)

What happens when Capital Flows to Emerging Markets Stop Suddenly?

One of the biggest risks of investing in emerging markets is that capital inflows from advanced countries can stop suddenly. This can be due to many reasons such as political problems, higher possibility of higher return in advanced countries, over-heating of the emerging market economies, etc. When capital inflows into emerging markets stop suddenly the real economy of those countries will be affected severely for many years to come.

The following historical charts from a study by authors at IMF shows that once capital inflows stop, real growth trajectory of emerging markets is negatively impacted and it takes many years to recover and follow the normal growth that existed before the crisis.Source: The Transmission of Financial Stress from Advanced to Emerging Economies, IMF Working Paper

Related ETF: iShares MSCI Emerging Markets Index (EEM)

A Look at Top Five China ADRs by Market Cap

The economy of China is stable and growing due to the government stimulus program focused towards infrastructure per World Bank's Quarterly Update. Imports of raw materials have increased though exports have not due to lack of demand from overseas. China has tremendous potential to grow the domestic market.

About 42 Chinese ADRs trade in the New York Stock Exchange(NYSE) and many more in the NASDAQ and OTC markets. In this post, lets take a look at the largest five companies by market capitalization that are traded in the NYSE.

1.PetroChina Company Ltd (PTR) is one of the largest integrated oil and natural gas producer and distributor in China. Last year the company had total revenus of $145B. The profit margin is about 11% and the average annual earnings growth is 8%. The current dividnd yield is 3.95%. As the demand for gas continued to rise in China in recent, PTR did performed well with revenues rising 28% annually.

2.China-based life insurer China Life Insurance Co Ltd (LFC) offers "a range of insurance products, including individual life insurance, group life insurance, accident insurance and health insurance products". At the end of last year China life had "102 million individual and group life insurance policies, annuity contracts and long-term health insurance policies". LFC pays a dividend of just 0.91%.

3.China Petroleum & Chemical Corp aka Sinopec (SNP) is another integrated oil company with operations in the Chemicals sector as well. SNP operates 16 oil and gas producing fields. Sinopec pays no regular dividends. Similar to Petro-China, SNP's total revenues rose 26% annually over the past 5 years.

4.Telecom services provider China Telecom Corp Ltd(CHA) has a market cap of $7B. CHA's current yield is 2.19%. Last year's total revenue was $27B. Revenue growth was flat at 4% in recent years. Additional new services and offerings such as Blackberry and other mobile technologies should help the company achieve higher growth in future.

5.Aluminium producer Aluminum Corp of China Ltd (ACH) is "principally engaged in the extraction of aluminum oxide, electrolyzation of virgin aluminum and the processing and production of aluminum." ACH does not pay dividends. Profit margin is a solid 20% and last year's revenue was $9B.ACH seems inexpensive compared to its peers since the P/E is just 6.62.