The Growing Middle Class Of India

The Middle Class in India

First Published Date : June 13, 2011 ADawnJournal.com

One of the biggest drivers of an economy is the middle class. They have enough disposable income to help fuel retail businesses, they also have more time to enjoy what they buy, which usually results in them buying more things that are slightly more expensive. For a country to be strong and healthy, it needs a good middle class and there are few with a middle class as large, or growing as fast, as India’s middle class.

India is currently growing, economically-speaking, at a rate of 8.3 per cent every single year. This is putting the country on track to become one of the biggest economy on the planet. Currently, India has the third largest economy in Asia, behind only China and Japan.

Currently, the middle class of India numbers 50 million people, all of whom are being sold on Western culture, including its brands. This means that India’s purchasing power is going to grow, reaching 6.1 per cent of the world share by 2015. India is also working to eradicate poverty within only nine years. In 2006, one quarter of India was in poverty but that number is shrinking.

As India grows, so does its middle class and so does the PPP-adjusted GDP of the Indian people, which currently sits at $3,290 in U.S. dollars.

Amazingly, by only 2015, 70 per cent of India could be in the middle class, which would mean it will grow from 50 million people to nearly 750 million people, more than most countries have combined. This means that North American markets and investors can begin investing in products that Indians want, because in only a few years, a lot of Indians are going to be able to buy them.

India trades heavily with China, which in turn will continue to help China’s growth. North American and European investors don’t want to be left behind though and are working hard to make sure India keeps buying from them as well.

India joins several other economies in Asia that are becoming world leaders and are expected to be the dominant economies of the 21st century in a few decades. These countries include Indonesia, Japan, South Korea, China, Thailand and Malaysia. In 2050, these countries will represent 75 per cent of the Asian population, and their Gross Domestic Product could push past 90 per cent of all of Asia’s Gross Domestic Product. Amazingly, these countries will also account for half of the world’s entire Gross Domestic Product by 2050 as well. If these countries have 3.1 billion people, and $14.2 trillion in GDP right now, think of how much they will have in just a few decades.

As India grows, so does its middle class and that presents immense opportunities for many investors to get in on the ground floor of people who suddenly have more money than they ever had before, and who are ready to spend that money like never before as well.

There are big opportunities indeed.

Canadian Dividend ETFs

Canadian Income ETFs

First Published Date : June 19, 2011 ADawnJournal.com

Who does not like to sit back, relax, and collect dividends on a regular basis without worrying too much about picking individual stocks or giving hefty fees (MER) to mutual funds? ETFS allow you to do just that, and for income hungry investors the choices to pick income or dividend EFTs are getting noticeably wider in Canada. Today, I am going to discuss my top eight ETFs I like for generating income. ETFs trade on stock exchanges just like stocks and you can buy them through your discount brokerage account or through a licensed financial advisor. For more information on ETFs, please visit A Dawn Journal ETF Section and TMX Money ETF Section.

BMO Covered Call Canadian Banks ETF (TSX: ZWB) – This ETF invests in Canadian banks and writes out of the money covered call options, thus earning premiums on call options. As of this writing, it has a staggering portfolio yield of 9.56 per cent and MER is 0.65 per cent. Before considering this ETF, do understand how the covered call option strategy works and the risks associated with it.

BMO monthly Income ETF (TSX: ZMI) – This ETF, actually, is an ETF of ETFs. It maintains a 50/50 balance of equities and fixed income, investing 50/50 in high yielding equity and fixed income ETFs. Portfolio yield is 5.35 per cent and MER is 0.55 per cent.

Claymore 1 – 5 YR Laddered Corporate Bond ETF (TSX: CBO) – This ETF tracks the DEX 1-5 Yr Laddered Corporate Bond Index. It tries to main a continuous maturity laddered portfolio of securities maturing in a proportional, annual sequential pattern. Portfolio yield is 4.63 per cent and MER is 0.27 per cent.

Claymore S&P/TSX Preferred Share ETF (TSX: CPD) – Simply enough, this ETF tries to match the performance of the S&P/TSX Preferred Share index. Portfolio yield is 4.80 per cent and MER is 0.48 per cent.

Claymore 1 – 5 YR Laddered Government Bond ETF (TSX: CBO) – Similar concept like CBO mentioned above, but this ETF tracks the DEX 1-5 Year Laddered Government Bond index instead of the DEX 1-5 Yr Laddered Corporate Bond Index. Portfolio yield is 4.52 per cent and MER is 0.16 per cent. Notice the MER; it’s really a bargain.

Claymore Canadian Financial Monthly Income ETF (TSX: FIE) – Name says it all. This ETF tries to provide monthly cash distribution of $0.04 per units. Portfolio yield is 6.70 per cent and MER is 1.24 per cent. MER is quiet high.

iShares Diversified Monthly Income (TSX: XTR) – Similar concept like ZMI mentioned above, XTR is an ETF of ETFs and provides consistent monthly cash distribution. Portfolio yield is 5.78 per cent and MER is 0.55 per cent.

iShares S&P/TSX Capped REIT Index ET (TSX: XRE) – This ETF tries to match the performance of the S&P/TSX Capped REIT Index. Portfolio yield is 4.88 per cent and MER is 0.59 per cent.

Disclosure – This article is for information purposes only and No information is intended as investment, tax, accounting or legal advice, or as an offer to sell or buy or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security, ETF, or fund. The author assumes no liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon. You bear responsibility for your own investment research and decisions, and should seek the advice of a qualified financial professional before making any investment decision. I own some of the ETFs mentioned here.

What Is Fiscal Stimulus?

Fiscal Stimulus

First Published Date : November 10, 2010 AdawnJournal.com

Right now there is a lot of talk about how the government is trying to get the economy moving through the use of stimulus packages. Often, many wonder about just how effective a stimulus package is and whether or not fiscal stimulus is actually something that should be used. The problem is that many people do not understand what fiscal stimulus is, so to help, here is a rundown to get you up to speed.

Fiscal policy is essentially fiscal stimulus and it involves the use of government spending and revenue collection to help influence the economy, usually to restart it and get it moving again during a recession. Government expenditures, known as fiscal stimulus, helps to distribute income, allocate resources, and aggregate the demand and level of economic activity.

Many economists actually doubt just how effective a fiscal stimulus actually is though. The reason is that some economists feel that fiscal stimulus will cause crowding out. What this means is that government borrowing will lead to higher interest rates, which then will offset the stimulus and its impact on spending. When the government is running into a deficit with its budget, then the government gets its money from issuing government bonds, which is a form of borrowing from the public. The government can also borrow from overseas or monetize the debt. When the government funds a deficit with government bonds, the borrowing itself creates a higher demand for credit, which then causes interest rates to increase. This in turn creates a lower demand for goods and services, which completely goes against the point of the stimulus package itself.

In the United States, the most famous example of fiscal stimulus is the American Recovery and Reinvestment Act of 2009. The point of this stimulus was to create jobs and promote consumer investing and spending through the recession. This goes along with the basis of a fiscal stimulus, which is the government running a deficit in order to improve spending with the consumers through a recession. Many economists felt this was the wrong path to take but the Federal Reserve had already cut interest rates to zero, which thereby reduced the number of policy options open to the government. The flow of cash within the government was also stagnant, which made things difficult and the government argued that a stimulus was the only option within these conditions. This fiscal stimulus package was worth $787 billion and included the expansion of unemployment benefits, social welfare services, increased spending in education, the energy sector, infrastructure and health care. It also featured tax incentives for consumers and companies to help jump-start the economy.

It will be awhile before we know for sure if the stimulus package worked or not, but as for now, the concept of fiscal stimulus appears to be the best bet for many industrialized countries around the world who are trying to improve their economies and get out of the worst recession since the Great Depression. Now you know what a fiscal stimulus is, which will help you understand how it works and how it affects you better.

What is Quantitative Easing?

Quantitative Easing (QE)

First Published Date : November 17, 2010 ADawnJournal.com

When someone hears the words “quantitative easing”, they can be forgiven for not knowing exactly what that this financial concept is. After all, it is a complex concept that many people, people outside the financial industry, simply do not understand.

Quantitative easing is a monetary policy that is used by central banks as a way to increase the overall supply of money, which allows them to increase the reserves of the banking system. This is typically done through the purchasing of central government bonds, in order to stabilize, and/or prices and thereby lower long-term interest rates. When normal methods at controlling the money supply have failed, this method is typically used.

As for how the policy is implemented, quantitative easing is done in the following method:

1.   A central bank will credit its own account with money it creates.

2.   The central bank then purchases financial assets which can include agency debt, mortgage-backed securities, corporate bonds and government bonds. This gives the bank an excess of reserves that allows them to create new money, thereby creating economic stimulation.

Obviously, there are risks associated with quantitative easing. Sometimes the policy is not effective enough if banks don’t use the additional money they have made in order to increase capital reserves, which then increases the risk of the bank defaulting on its loan portfolio, which can cause many more problems down the road. Another problem is that quantitative easing can create an excess of inflation, more than is desired, and even lead to hyperinflation.

The Bank of Japan used quantitative easing in order to fight against the deflation of the domestic currency in Japan. Recently, thanks to the massive economic crisis that has gripped the world, the United States Federal Reserve has used quantitative easing to fight the effects of the recession. The European Central Bank has also used 12-month long-term refinancing operations through the process of expanding on assets that the banks can then use as collateral.

The reason that it failed with Japan is because the Bank of Japan maintained short-term interest rates at close to zero values for several years. Then, using quantitative easing, they flooded banks with an excess of money in order to influence private lending. This then caused large stocks of excess money, which then create a small risk of money shortfalls.

Japan actually created quantitative easing, with the Bank of Japan adopting the policy on March 19, 2001. However, the earliest written record of the term dates back to Richard Werner, a professor of international banking at the School of Management in the University of Southampton, when he warned of the coming collapse of the Japanese economic banking system.

So, that essentially sums up quantitative easing and what it is. While it may still be difficult to understand, you at least have a basic understanding of what this unique financial tool is and the effect that it can have on your life. During this financial crisis, it is clear that quantitative easing may be the one way out of it for many central banks.

Canada ETFs Begin Charging HST

ETFs, HST, and Canada

First Published Date : November 21, 2010 ADawnJournal.com

In Ontario and British Columbia, the Harmonized-Sales Tax (HST) is something that is not very popular. As well, it is beginning to chance how things are priced with exchange-traded funds (ETF). In the past, iShares, which was launched by Carclays Global Investors in the late 1990s, has never charged the Goods and Services Tax (GST) on its ETFs. The tax was paid out by the company itself, making ETFs more affordable and more desirable from the perspective investors.

Sadly, that changed this past year when BlackRock Inc, which recently purchased iShares in 2009, decided to begin charging HST.

HST is the combination of the provincial sales tax of Ontario, and the GST of the federal government. When put together, the HST comes to 13 per cent. On July 1, it took effect in Ontario, combining the eight per cent provincial sales tax and the five per cent GST.

In a notice to investors, BlackRock stated that it will no longer pay for GST on behalf of the family of iShare funds.

Many investors are now asking why this has become the state of affairs for the iShares ETF. The main reason is that globally, most ETF companies do not absorb the taxes and BlackRock wants to make sure there is an industry standard across the globe to make investing easier for countries around the world.

While they say that, most likely the reason is that the cost of paying 13 per cent of the tax for investors will simply amount to more than BlackRock can afford. While many investors are just told that the policy is to get everything under the same umbrella as the industry practice, it is not hard to figure out that BlackRock wants to make money, paying the HST costs them money, so they are no longer paying the HST.

Currently, iShares has three main rivals which is Claymore Investments, Bank of Montreal and BetaPro Management.

At this time, iShares controls 80 per cent of the ETF market within Canada, more than what smaller ETF companies hold in the market and those smaller companies have often not paid for the GST. Therefore, it can be seen that iShares is getting in line with companies that are much smaller than them, an odd thing to do when you are an industry leader.

Regardless, the days of iShares being GST, PST and HST free are now gone. From now on, when you are buying ETFs in Canada through iShares, you are going to be paying for the HST on top of your purchase meaning The HST will be a part of the management expense ratio. While it is the norm in the industry, that does not mean investors have to be happy about it and you may see a backlash in the coming months and years as investors decide whether or not the new higher cost of the ETF is worth it.