Southern Comfort

10/08/2009 11:16 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

An economy in dire straits might still be said to be heading south, but recession-weary northerners could do worse. In the financial arena the nether hemisphere has been red hot, its rich soil nurturing a balmy business climate.

Brazil cashed in on its rising global stature late last week as Rio De Janeiro beat Chicago, Tokyo, and Madrid to the 2016 Summer Olympics.

Not long ago, the country couldn't be trusted to stay solvent for seven years. Now, its increasingly diversified economy is growing again, the government is paying down debt far less onerous than Uncle Sam's, and foreigners are piling into a stock market that's up 68% so far this year, before the real rallies any further. The Brazilian branch of Banco Santander (NYSE: STD) has just raised $8.1 billion  in Sao Paulo and New York, the biggest stock offering anywhere this year.

And then it was Australia's turn, as the least populous G20 nation became the first to hike its interest rate a symbolic notch, sparking a global run on alternatives to the depreciating US dollar. Consumer spending and borrowing have been strong, boosted by upwardly mobile housing prices. The business and labor lobbies issued perfunctory objections, but the stock market was so concerned it jumped more than 2% the day after.

India could be next to nudge borrowing costs higher, in an attempt to slow resurgent food inflation. Indonesia is also on the cusp, the central bank already looking ahead to economic growth above 5% next year.

The economic thawing is not an exclusively southern phenomenon: Norway and South Korea are also facing the near-term prospect of higher rates as growth revives. And then there's Canada, where home sales are 18.5% year over year, while the average sale price is 11% higher than a year ago and 37% above the average sale price in the US.

The Russian stock market, valued at $44 billion in January, is up to $113 billion now and 30% higher since its mid-August hiccup. With US rates on hold and US government borrowing sky high, risk takers from Moscow to Sydney continue to bet against the greenback. Emerging-market central banks are increasingly getting dragged onto the other side of that trade, buying dollars to keep currency appreciation in check. They may not be in any great hurry to hike rates. The global equity rally is telegraphing as much. So, take Australia's token tightening as a reminder that the world continues to drown its recent sorrows in freshly printed money.

Liquor would be quicker: Just ask the former bar regulars who've recently resorted to nursing six-packs on the couch instead. Were they to reconsider or at least start imbibing the harder stuff at home, Diageo's (NYSE: DEO, LSE: DGE) bottom line and share price could bubble up, writes Carla Pasternak. The top spirits producer has already taken its cost-cutting medicine while continuing to grow in emerging markets. They've been toasting their good fortune with Johnnie Walker in Brazil and Guinness in South Africa.

And if the drinkers elsewhere eventually return to form, so too might the impulse snackers whose self-restraint has been constraining the bottom line of the North American convenience store chain Alimentation Couche-Tard (TSX: ATD-B). Tom Slee reckons that the stock could pop 28% higher, which would certainly buy a lot of chips and syrup.

On the other hand, investors would be wise to heed Matt Hougan's warning about the double premium fetched by the Morgan Stanley China A Share Fund (NYSE: CAF). His suggested alternative, the SPDR S&P China ETF (NYSE: GXC), seems much more reasonably priced and has handily outperformed the CAF of late. In fact, since peaking in May the CAF is down 17%, a dubious achievement of note in this environment.

Carlton Delfeld warned readers off the CAF at its very pinnacle in May, recommending the Claymore/Alpha Shares China Small Cap ETF (NYSE: HAO) instead. The HAO is up 27% since, leaving the Chinese large caps in the dust.

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