Stocks surged yesterday on signs of resilience in the housing market and the U.S. consumer, as well as falling oil prices. The Dow Jones Industrial Average reached a five-week high, rising 128.00 points to 12,510.30 — its highest close since Feb. 26. The Dow now is back in positive territory for the year and 276 points below its record close of 12,786.64, reached Feb. 20. Markets in Asia also were up across the board overnight. Mr. Market is emerging from his emotional funk.
European markets continue to outperform the rest of the world, as reflected in the price performance of our European holdings in the Global Stock Investor portfolio. The Swedish ETF (EWD) now is up 6.44% since our initial recommendation. April’s featured pick, U.K.-based Tesco (TSCDY), is already up 4.46%. This week also marked a historical turning point, when, according to the Financial Times, European stock markets officially surpassed the U.S. in size for the first time since World War II.
Despite Europe’s strong showing, it was Latin American cell phone giant América M³vil (AMX) that did the best over the past week by jumping 8.35%. The stock is now up 4.71% since our initial recommendation.
AM‰RICA M“VIL (AMX)
América M³vil soared this week on news that it, along with AT&T, has offered about 4.5 billion euros ($6 billion) to let each of them acquire a one-third stake in Olimpia S.p.A., Telecom Italia’s holding company.
As Merrill Lynch noted, the deal was a "once in a lifetime opportunity" for América M³vil to create the biggest mobile operator in Brazil — the fifth-largest mobile market in the world. If the deal goes through, América M³vil could merge its Brazilian operations with those of Telecom Italia, overtaking Vivo, Brazil’s leading mobile operator. It also would enable América M³vil’s Brazilian operations to achieve a margin on earnings before interest, tax, depreciation and amortization of more than 40% — among the highest in the world. This is a very significant development for the stock.
Tesco has yet to open its first store in the U.S., yet the competition is already quaking in its boots. The U.K. retailer is seeking to block a court challenge that would immediately stop construction of its distribution and food processing center in Riverside County east of Los Angeles. This is little more than an annoyance, as the Tesco project — one of the "greenest" in the world — has won the backing of the leading local environmental activist groups.
The potential threat to traditional larger supermarkets — including Safeway, Albertson’s and Kroger — from Tesco’s planned "Fresh & Easy Neighborhood Market" stores, is significant. Credit Suisse Securities argues that Tesco’s U.S. entry could "redefine the mainstream grocery business" in the United States. The investment firm estimates that the U.K. retailer could generate $1 billion in sales within three years to capture 2%-6% of the local market share in five years.
SWEDEN ETF (EWD)
Sweden’s new center right government has proposed to scrap the country’s wealth tax, removing one of the most powerful symbols of seven decades of almost uninterrupted left wing rule.
The move affirms Sweden’s youthful reformer, Fredrik Reinfeldt, and his right wing credentials. It also sends a powerful message that the accumulation of wealth in egalitarian Sweden is no longer taboo. The tax has been blamed for years of massive capital flight from the country. Its abolition should also make more resources available for venture capital and other early stage investment, encouraging entrepreneurial activity and creating thousands of new jobs.
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