Black box warning: The latest exchange-traded fund from Renaissance Capital aims to double up its initial public offering focus. Its US IPO ETF (IPO) lured in $30 mn in assets, and now it has a sister fund for the rest of the world, International IPO ETF, IPOS. Most IPOs sink after they come out and with shocky quality recent euro-land issues and fear of deflation, this will be even more true for global new issues.

The King of France, with 30,000 men, He went up the hill, and then went down again.

The main reason for the sell-off appears to be disappointment with European and Japanese growth. But even in countries where output is back to pre-crisis levels, like the USA or Britain, investment has not picked up and wages are not back to where they were.

Monday is a half-holiday in the USA, with bond markets closed, but stock markets open in celebration of Christopher Columbus. Yesterday was the Feast of Booths, a Jewish holiday.

We have a new stock recommendation from our Japanese expert Chris Loew, an important quarterly report, luckily a good one, and other information from Mexico, Colombia, Ethiopia, India, and a few more established markets as well. We start with Chris:

Non-Pacifist Japanest Stock

*PM Abe’s approval rating has fallen because he rammed through—without debate—changes in the interpretation of Japan’s pacifist Constitution. Japan can now join “collective defense” in some cases and export weapons. Abe earned a 76% approval rating in April 2013 after the pickup in exports following yen devaluation, but after re-interpretation this summer, that plummeted to 48%. It has now recovered to 50.7%.

Aircraft makers ShinMaywa Industries, Ltd. (Tokyo:7224) and Kawasaki Heavy Industries(KWHIY) will both benefit from the eased export rules. I prefer ShinMaywa since its US-2i amphibious search-and-rescue aircraft is less blatantly military than KWHIY’s maritime patrol-anti-sub plane or its military transport. The Indian Navy will buy 15 to 18 of ShinMaywa’s planes for $1.65 bn which also supplies parts for Boeing.

ShinMayw's appeal is because it is less dependent on government projects than KWHIY as it makes aircraft boarding bridges, custom truck bodies, hydraulic parking systems and other civilian machinery. Making custom trucks (dump, trash collection etc.) contributes more revenue and profit than aircraft. KWHIY makes ships and rolling stock, both subject to economic cycles and budget cuts.

Though the ShinMaywa had a 1-year return of 32%, the p/e ratio is still a reasonable 12.5x. It trades at less than book value and less than half of yearly sales. These low figures result from its revenues falling a third and net profit margin sinking from 4.75% in the last quarter of 2013 to barely over 3% in its FY Q1 (ended June 30.) The falling yen boosted truck sales early this calendar year but sales normalized as the yen strengthened. A long-term weakness of ShinMaywa is that parking systems have become less profitable as the shrinking Japanese population buys fewer cars. Because other countries are less densely populated than Japan, they don't need hydraulic multi-level parking systems.

No Skeletons for Shiva

*Our India play, Infosys (recently omitted from our performance tables by error) today reported results worth of the giant god Shiva. Revenuees in its Q2 (to Sept. 30) rose 3.1% sequentially to $2.2 bn from Q1, but an impressive 6.5% year over year. And profits simply rocketed, up 6% sequentially to $511 mn and 33.4% y/o/y, helped by the falling rupee. Its profits hit rupees 30.96 bn, $508 mn, up 29% to 89 cents/sh in the quarter.

All these figures were way over analyst forecasts, the quarterly profits by ~10%. And they were booked despite INFY adding more than 14,250 more employees to its ranks in Q2, about 8% and boosting its investments, mainly because the IT firm is doing software consulting and products as well as outsourcing. This brought in so many new Western clients. Growth came from new long-term clients like Daimler, Oracle, the US Postal Service, Hitachi, and Huawei.

The key to these numbers according to new CEO Vishal Sikka was “digital transformation of its own operations”, and according to COO U.B. Pravin Rao was “operational efficiencies”. Dr Sikka was recently hired from SAP as the co. founders retired. Normally if there are skeletons in a company's closet they are revealed in the first report by the new CEO and his team. Not this time.

INFY expects to produce a 7-9% rise in revenue in FY 2014-5. It announced a dividend of 30 rupees/sh, which is about 50 cents/ADR in US$. It also announced a 1:1 stock dividend to enhance its liquidity. Im Bombay where the market is suffering from a reaction to yesterday's downer in the USA, INFY nonetheless rose 6.25% in Bombay today and is up 5.7% in the US so far. It is up about 20% since the new management was installed, when we bought. Like many Asian shares, INFY uses a March 31-end fiscal year. (More on another error below.)

*Nokia has signed a new framework agreement with China Mobile to provide $970 mn of hardware, software, and services covering infrastructure, management, and applications this year and next. The contract is to bring on 4G for the world's largest cellphone firm. NOK began the deliveries earlier this year before the framework agreement was in place and its “Greater China” business reported for Q2 already showed a gain of 18% in sales, to euros 306 mn, without details.

China Mobile plans to spend RMB 75 bn ($12.2 bn) on the upgrade of its systems. NOK stock is up of course, again over $8.

Brazil Undertainty Play

*Uncertainty in Brazil is not only about the polling. It also afflicts the price of Oi (OIBR) and indirectly that of our Portugal Telecom SGPS. In my biased opinion the departure of Zainal Mohammed Bava is good news for PT as he jumped ship to Oi as part of the merger of the two telcos. New CEO Bayard de Paoli Gontijo told DowJones today that it will consider selling some assets outside Brazo; to build out its position inside.

The likely outcome is Oi divesting PT and releasing its claims to the looted funds snatched from PT by the bankrupt Luxembourg affiliate of bankrupt Banco Espirito Santo. If Bava is replaced by an outsider, the deal can be done in a matter of weeks. This would free 4^th ranked Brazilian telcom Oi to negotiate to buy the Brazilian sub of Telecom Italia, TIM Brazil, the local no. 2. This can be done alone or with cash-rich Telefonica (of Spain) or America Movil (of Mexico.)

It would also give PT an exit from the mismanaged merger where it was left as a minority partner with a hefty debt to pay the Brazilians (the BES losses.)

With Altice chief Patrick Drahi aiming to combine PT with his Cabovisão and ONI in Portugal, the Portuguese authorities may give more help to collecting the BES money if it is not headed for Brazil. And while both Bava and the Bank of Portugal (CB) failed to spot the coming crash of BES, Mr Drahi is a newcomer. PT continues to fall over morosity about Europe but could be valued at as much as euros 7 bn if the Wall Street Journal is right.

The electoral uncertainty meanwhile makes any Brazilian play a risky one.

Cystic Fibrosis Therapy?

*Belgium's Galapagos nv yesterday presented a key “poster” at the Atlanta North American Cystic Fibrosis Congress about its novel potentiator and corrector series. This restores healthy cell function in the most common CF mutation, delF508, which affects 40% of sufferers from the hereditary and usually fatal disease. A new corrector and another called C18 was tested combined with the new potentiator GLPG1837. The phase I trial of GLPG1837 will begin before the end of the year with correctors. GLPGF or GLPYY is looking into combinations of 5 different corrector seris in combination with GLPG1837. It has 3 phase II studies, two phase I studies, and 5 pre-clinical studies in CF. GLPG0634 is an orally available selective inhibotr of JAK 1 which is also under study for arhtritise and other diseases which respond to a selective inhibitor of JAK1. The trial will be financed under an accord with AbbVie. The conference is sponsored by the Cystic Fibrosis Foundation.

We are in this stock because our former European-based biotech maven went to work for GLPYY and had to stop filing for us. Out new maven is in the USA.

*Cameco began producing uranium ore at Cigar Lake in northern Saskatchewan and is trucking the ore 45 miles to the McClean Lake processing plant operated by Areva of France (ARVCF). We sold Areva but still own CCJ. The mill will produce ~1 mn pounds of uranium this year and as much as 18 mn lbs by 2016. Cameco's share is half of the total because it owns only a fraction over half the mine, although it is operator. Cigar Lake is one of the richest uranium ore bodies on earth but its development has been technically challenging, marked by flooding, but at C$2.6 bn it was a relatively cheap mine.

CCJ was raised to a buy from hold by Dundee and Cormark brokers in Canada.

*Beneficiary of rumors that Kim III (Kim Jong Un) is either indisposed or deposed has boosted the price of Shinhan Financial Group. SHG is South Korean.

Averaging Down

*My old limit order to buy more Allana Potash was exercised automatically yesterday despite the Jewish holiday. I doubled down at $0.242. The rpice today is 0.245. This Canada stock is a play on an Ethiopian potash project. I am excited about Ethiopia, subject of a long article in today's NZZ on-line.

The Swiss newspaper reporter wrote about how building a railroad and a dam on the Blue Nile should help Ethiopia exit from the list of the 10 poorest countries on earth. Its annual average per capita income is $1300, and 77% of its people live on less than $2/diem. With 85 mn people, mostly young, the country has huge growth potential.

It has a 5-yr govt Growth and Transformation plan which runs till the end of next year, which will almost certainly be renewed. Sudan will raise $15 bn on international markets (of course including the Swiss one) alongside international agencies. This provides for its own Grand Ethiopian Renaissance Dam (GERD) only about 25 miles from the border with Sudan. It is not opposed by Sudan, but by Egypt which fears that the 6000 mW project will hurt its own Nile Aswan Dam and violate a 1929 accord about sharing the waters.

Without the dam, plans to build a railway and encourage industrialization wouldn't be feasible. Started in 2011, the 4-line railway network will hit 1300 miles by the end of next year, and add another 2000 miles by 2021. These will replace the narrow-gauge Addis Ababa line to Djibouti port built in 1917. Again there is Swiss money at stake, with Credit Suisse funding $1.7 bn for the Ethiopian State Railways and another $850 mn pending on commercial terms. One of the rail lines will go to our potash deposit. Railway equipment is being financed by Austrian and Swedish companies, as well as Swiss ones. However the largest railway builder in Ethiopia as in other African countries is Chinese; China is even building the metro in Addis.

The fact that Swiss banks and European multinational companies are providing finance to Ethiopia's govt is a sign of optimism over the outlook. We share it.

*I also averaged down on Benitec Biopharma BTEBY overnight today. I reported a correction from CEO Peter French to some of the criticisms he has been subject to by anonymous writer Dr KSS on the pages of www.stockgumshoe.com which I freely state is where I got the idea for buying this share Down Under, before it created an ADR. I paid $3.3/sh. A nice thing about the selloff hitting small caps is that it is an opportunity to average down.

*Singporean Global Logistic Properties was one of the few gainers, up 2.75% because of a new strategic partnering deal with China Development Bank for logistics infrastructure financing and land purchases.

*Our Arab drug firm Hikma Pharma reports Monday, a half holiday in the USA. Its stock is rising steadily in London but the US posted price looks flat. I suspect if I tried to buy more the HKMPY price would adjust.

*Schlumberger Ltd landed a third of the $2.12 bn contracts for oil from OPEC's smallest member, Ecuador. SLB is down on fear of lower oil prices, but its long-term business is actually being boosted as countries aim to produce more of the stuff as their income from existing wells declines. This is how cartels behave. SLB plans to sell to private equity funds its tool rental unit, Thomas Tools, which can raise as much as $800 mn, according toReuters.

*Banco Latino de Comercio did a $90 mn syndicated loan for Cables de Energia y de Telcomunicaciones, Centelsa, of Colombia and Peru, each split into tranches for 5 and 7 years. Both Centelsa's are customers of Latin America's leading cable and wire maker,Zignux S.A.de CV of Mexico. Still to come may be another deal from its Ecuador operations.

*Teva, its commercial licenser, has launched the US phase I trials of Adasuve (Staccato plus loxapine inhalation powder) and shipments have begun from Alexza Pharma which is the maker of Staccato. The combo is used in a hospital setting is to treat acute agitation in schizophrenia or bipolar disorder and has to be administered to prevent respiratory events.

*Two women, one a Novartis employee, pleaded guilty to bribery in Poland. In a woman to woman scandal, the NVS woman did not sell sex but gave a government health fund official a free trip worth over $1000 in return for boosting sales of a drug. NVS was not charged, only its employee.

*Canadian simulator firm CAE reported it has signed C$200 mn in new civil aviation training but the details could not be garnered from its website which now needs simulation too.

Fund news:

*Aberdeen Asia Pacific Income Fund, FAX, will pay a monthly dividend of 3.5 cents, 61% of which is investment income. The rest is return of capital which is untaxed, but the figure may be adjusted before the 1099s go out.

*Aberdeen Global Income Fund, FCO, will pay 7 cents in dividend, of which 71% is investment income, under the same conditions.

*Misled by the wording of the press release in English and Spanish, I failed to realize that all four of the Insurgentes Corridor new acquisitions by REIT Fibra Uno, FBASF, were made in the past few weeks. Two came on Oct. 1 and two others are pending. Gracias to Eduardo Garcia of www.Sentidocommun.co.mx for explaining. When FBASF runs its NY investment day on Oct. 28 I will caution them to clean up their press releases just as they have cleaned up their corporate governance.

*There is worse. I reversed the net asset value and the price of Canadian General Investments, CGI-Toronto, CGIRF for us. Only one reader, lawyer DG, spotted my error. I hope he doesn't sue.

*Lex in The Financial Times seems to think that Liberty Global Media is a US firm. LBTYA which we recently sold is British. Liberty Interactive is the US arm for serial acquirer John Malone.

*Updating our tables was not a pleasant task. There were no hiding places from the global sell-off. That means the few shares which failed to drop were probably ones which didn't trade Friday because the market was closed (in Israel and Dubai, for example). Or because the locals will become aware of full extent of the US selloff only on Monday, as in Australia or India or Hong Kong.

Diversification only works when markets avoid the panic mode. I fear the rout may not yet be over. The Far Eastern-Pacific Rim  and Middle Eastern markets haven't yet marked down their shares. Transmission to our US currency markets will be spotty on Monday, because it is half holiday (Columbus Day). The fan will not be hit before Tuesday.

Some Canadian stocks did show a bit of a bounce on Friday:  CAE, Cameco, Agrium, and Performance Sports Group. These are in the same time-zone as US markets. However, at least part of the bounce was from modest strengthening of the loony. So it too may reverse. Or not. Canada is felt to be a market where energy prices dominate and the falling oil price is one of the factors cited for the US selloff this month.

With the Grossly troubled bond markets so much in focus, note that our yield plays in foreign bank preferred stocks (British) all gained in last week's trading. They all pay in US$ and therefore avoid the currency trap. But bond markets will be closed Monday, and they are the determinant of any fixed income share prices.

Defer to the Lord High Executioner

Finally with so much else to worry about, I did not get a confirmation of my purchase of ShinMaywa Industries, written up Friday by Chris Loew from Japan. It trades as JP:7224. I put in my order before the US market closed but then I couldn't find out if it had been executed as E-trade's telephones went down. They are still down today, Sunday. It is not showing up in my global trading account but that has so many other failings I don't want to draw any conclusions from what is displayed.