The Global Economy Hasn't Stopped Nick Lanyi From
Uncovering High-Quality, High-Yield Opportunities
Interview with Nick Lanyi
Lanyi is the editor of High-Yield International, the
leading publication for investors seeking the best income opportunities
around the world.
The global economy may be slowing, but that
hasn't impacted Nick's ability to find investments with "strong
income, the potential for capital appreciation, and only moderate
risk." In today's issue, we asked Nick to survey the international
investment landscape and discuss why he favors one industrial
sector, in particular, for its continued ability to deliver high
yields at great values.
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The Global Economy Hasn't Stopped Nick Lanyi From Uncovering
High-Quality, High-Yield Opportunities
Q: The world is projected to see its economy shrink for
the first time since World War II. What do you think of this
assessment? Who is still growing? What will this mean for
A: If the U.S., Japan and Europe all report declines of -4%
to -5% or worse in the first quarter, it's highly likely
that the overall global GDP for all of 2009 will be lower
than that in 2008. Almost the entire world is in recession
-- a remarkable development, and the reason we've seen stock
markets on every continent have suffered serious bear raids.
However, I think signs of economic turnaround -- or at least
a bottom -- will emerge before the end of the year thanks to
the massive stimulus packages enacted in the U.S. and China,
with the EU and many other countries either having followed
suit or considering doing so.
Whether the world's economy shrinks slightly or grows
slightly in a calendar year is not as relevant to investors
as the long-term direction. I think this serious recession
will last a few quarters, then lead to an economic recovery.
Global stock markets seem to reflect a severe, long
recession -- and they may be right. But eventually, both
economic growth and rising stock prices will return.
Some positives: China will grow in 2009; the only question
is how strongly -- and that's an enormously significant
question for the global economy and world stock markets. If
it's at the low end projected by some economists (+4% to
+6%), Asian stocks will remain stagnant. Demand for oil and
other commodities will remain slack, and their prices will
fall from current levels. If it's in the +8% range that the
Chinese government recently projected, Asian stock markets
will rise and commodity prices will probably move higher
than current levels (although oil and others have already
rallied on glimmers of hope emanating from China).
Brazil is another relative bright spot. After growing +5.1%
in 2008, the economy is slowing significantly -- but should
remain positive in 2009, which counts as a boom relative to
the prospects for the U.S. and most other developed
countries. The Brazilian currency, the real, has lost about
-30% vs. the U.S. dollar since last summer, but Brazil's
government bond yields are among the highest in the world.
As investors shift from recession panic to anticipation of
recovery, they'll flock to Brazil's attractive bond and
stock markets -- and the real will rally. I can't predict
the month that will happen, but I'm confident that scenario
will unfold. That's why it continues to make sense to hold
high-yielding Brazilian utility and telecom stocks now.
Q: Safety is first -- many investors are now more
concerned with asset protection than growth. Where can
investors find the greatest margin of safety? Are there
securities that still combine an element of safety and a
A: Yes. With asset values sharply down across the board,
we're seeing good values in many international stocks, bonds
and the closed-end funds and exchange-traded funds that
invest in them. Now, there's no such thing as a free lunch:
the global recession is for real, and when one invests in
high-yield securities, one must accept that volatility and
downside risk are the price we pay for the above-average
income. But there are degrees of risk, and many of the
investments I've recommended in recent months combine strong
income, the potential for strong capital appreciation and
only moderate risk.
For the most risk-averse investors who are looking for
income, I recommend a closed-end fund or ETF that holds a
diversified blend of foreign stocks, bonds or both. Examples
include Templeton Global Income (NYSE: GIM),
AllianceBernstein Global High Income (NYSE: AWF) and the Global
High Income Fund (NYSE: GHI).
Q: What's the most compelling international income sector
right now? What do you tell your family members about?
A: I give my family the same advice I give my friends in
High-Yield International. And as readers know, one area I've
emphasized in recent months that balances high yield with
great value is high-quality telecom stocks.
In general, telecoms combine solid cash-generating ability
from their core landline operations with growth potential
from wireless, cable and broadband operations at home and
abroad. But some telecoms are in better shape than others.
In developed countries, the strongest players have leveraged
their brand names (usually established during decades as the
monopoly provider) into leading market positions in most of
these areas while also maintaining a strong balance sheet
and keeping a tight rein on expenses. France Telecom (NYSE: FTE) is an excellent example. Deutsche Telekom (NYSE: DT),
another favorite, has the strong brand name but room for
improvement in its operating margins, which I anticipate
will happen in the coming years.
In emerging countries, I like telecoms with tremendous room
for growth because of low saturation rates for higher-margin
services such as broadband. Brazil's Telesp (NYSE: TSP) is a
If you'd like to learn more about the thoroughly
researched, high-quality, high-yield opportunities Nick
Lanyi shares with his High-Yield International
readers each and every month, please
visit this link.
Global Dividend Opportunities GlobalDividends.com
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
Bond prices have had a remarkable lap around the track in the
past few weeks. The yield on the triple-A bond -- which
had been at 4.83% last month -- shot to an average 8.93% last
week. The reason: Investors staged a flight from
quality as Wall Street awaited a downgrade of GE's credit
rating. S&P brought GE down a peg March 12, to "AA+" and
the markets relaxed. Like floodwaters, the yield on the
triple-A has started to recede, though it remains at a tempting
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