Interesting suggestion on Belgium

6 Nov 2012 by Jim Fickett.

Recently, after reviewing an academic paper on current stock valuations in Europe, I came down to a short list of four countries: Belgium, France, Germany and the Netherlands have attractive CAPE. Now Mebane Faber at World Beta adds another point to the attractiveness of Belgium:

Two factors that have consistently worked over time are value and momentum. …

On the country front for foreign some of the best momentum has been Belguim, Hong Kong, Germany, Greece, Turkey, Egypt, Thailand, and Mexico.

The cheapest are Russia, and basically all of the struggling Euro countries. (Greece, Ireland, and Italy lead the pack). The best combo of the two is Belgium as it is trading at a sub 10 CAPE with nice momentum.

Although I'm a believer in both CAPE and momentum, I also like to have some idea what I'd be buying. Here are the top holdings of the iShares MSCI Belgium Investable market Index Fund:

ANHEUSER-BUSCH INBEV NV 	22.49%
UCB SA 	                         7.90%
GROUPE BRUXELLES LAMBERT SA 	 6.41%
SOLVAY SA 	                 6.31%
BELGACOM SA 	                 5.39%
UMICORE 	                 4.77%
AGEAS 	                         4.51%
COLRUYT SA 	                 4.44%
TELENET GROUP HOLDING NV 	 3.82%
ELIA SYSTEM OPERATOR SA/NV 	 3.80%

Total	                        69.85%

Inbev is, of course, a beer conglomerate that has swallowed a large number of smaller brands. UCB is a biopharm; one of their most famous products is Zyrtec. Groupe Bruxelles Lambert is a holding company / investment fund; it is currently holding Total, GDF Suez, Pernod Ricard, Lafarge, Imerys, Arkema, Suez Environnement and Iberdrola. Solvay is a chemicals company. Belgacom is the largest telecom in Belgium, and is majority-owned by the state. Umicore is a specialist materials company, producing catalysts, battery electrodes, photovoltaic materials, etc. Ageas is a large, international insurer. Colruyt is a diversified and international retailer, concentrating mainly on supermarkets in Belgium and nearby countries. Telenet is the largest ISP in Belgium. Elia owns and operates much of the Belgian power grid; it is partly owned by the municipalities it serves.

On the whole that seems like pretty good diversification, and not a bad way to bet on a depressed market. My biggest hesitations are:

• Inbev is a large percentage of the total, so one might want to know more about the quality of their business before choosing this fund (Business Week recently had a somewhat sensational and rather negative overview)
• Most of these companies are not household names outside of Belgium, and I know little about their reputations
• Several times during the euro crisis Belgium has gotten quite a bit of negative attention, and some analysts group it with the other peripheral countries in trouble; so there may be a danger of a major disruption due to a sudden change in currency

All in all, a situation worthy of some thought.