The Silk Road to Riches
Asia for the Long Term
Investors are starting to panic. But if the market deterioration accelerates, the opportunity to buy into Asia will be comparable to that of 2001. Back then, I recommended Asian stocks to only a handful of investors who cared to listen. Luckily, the recommendations played out quite well, and I’m expecting the same outcome this time around.
Although the audience has grown substantially since then, I haven’t been able to determine whether investors truly comprehend the structural changes taking place around the world. It seems that this part of the equation isn’t fully understood and, therefore, the Asia investment story has a long way to run.
Nevertheless, Asia remains under constant selling pressure as investors seek direction on the global economy, inflation and earnings growth.
Such worries are understandable, and taking money off the table is always advisable when you have solid paper profits. But the majority’s firm belief that Asia is still nothing more than a high-beta play on the direction of the global economy is driving the selloff.
My view differs from that of the crowd: Asia is an increasingly important part of the global economy while leading growth. Where would Brazil be without Asia?
Asian economies have entered a cycle of capital investment, infrastructure spending and domestic consumption that’s still in its early stages. There remain many opportunities for the long-term-oriented investor. Selling Asia outright will prove to be a big mistake.
A well-balanced stock portfolio should be overweight Asian and Russian stocks. (Russia is another market investors have ignored--to their detriment--for too long.) As always, it’s crucial to keep your eye on earnings visibility as well as market valuations. Industry fundamentals will also play an important role in the stock selection process as the rest of 2008 unfolds and we begin to get a glimpse at 2009 prospects.
For the time being, the
magnitude of the selloff remains within expectations. I wrote the following two
months ago in my premium advisory, The
Silk Road Investor:
Nevertheless, the big issue to which investors want answers is how to quantify the downside for Asian markets. Asia can drop 20 to 25 percent from current levels. This doesn’t necessarily mean that it has to drop, but if things get ugly, this is how it should play out.
Any weakness in Asia--especially of that magnitude--will offer another opportunity to buy into this strong bull market.
Although the Asian market as a whole has dropped substantially since then, there’s potential for another 10 to 15 percent on the downside.
Expanding Infrastructure
Infrastructure will remain one of the most important investment themes for the foreseeable future. It’s a global story, but the gradual urbanization of Asia makes it a particularly intriguing opportunity.
According to the United Nations, Indonesia, China, Malaysia and the Philippines are experiencing faster rates of transition from rural- to city- and suburb-based economies. The process will take longer in India, Vietnam and Thailand; those countries are the next wave.
Although Asia’s infrastructure has improved dramatically, improvements have been concentrated in the higher-income economies of Hong Kong, South Korea, Singapore and Taiwan. China has been catching up in a big way, while India, Indonesia, Thailand, the Philippines and Vietnam have lagged.
Several studies forecast infrastructure spending in Asia ex-Japan of approximately USD3 trillion over the next five years. Efforts will be focused on electricity, roads, railways, ports, airports, telecom and water.
According to plans made public by respective governments China (USD2 trillion) and India (USD500 billion) will invest the most in absolute terms in the next half-decade. Of all the countries, China is best able to support infrastructure projects because its government is in an excellent fiscal position.
When Atlanta’s Lake Lanier all but dried up, Georgia’s Governor threatened to move his state’s border 2 miles north so he could divert water from the Tennessee River.
Water wars are legendary and water is once again becoming a very valuable resource. Take a look:
Last year Bloomberg’s Asia Pacific Water Index was the #1 performing index out of all 2,111 indexes it tracks — up an astounding 237% and 64% ahead of #2.
Click here for details on my top water pick and your chance to cash in on this dwindling resource.
China Infrastructure Machinery (CIM) is one of my favorite companies in the sector.
CIM is the only Chinese heavy machinery company individual investors can easily access because it’s listed in Hong Kong. It’s the second-largest producer of loaders in China, under the brand name Longgong. Its wheel loaders are used in a variety of infrastructure activities, including road, railway, tunnel and bridge construction as well as mining. The company has diversified into forklifts and excavators, a move that should help future earnings growth.
Its recent underperformance is explained by a margin squeeze brought on by the substantial increase in raw materials prices. But sales have been strong in the first six months of 2008; wheel loader sales are up 33.4 percent, and demand should increase given the need for post-earthquake rebuilding.
The company has also raised prices four times this year, and its average price for wheel loaders has increased around 9 percent, helping offset higher steel prices.
Speaking Engagements
Be sure to wear a flower in your hair when
you venture west to San Francisco.
My colleagues Neil George, Roger Conrad
and Elliott Gue will be heading to
“The City” Aug. 7-10, 2008, for the San Francisco Money Show.
Neil, Roger and Elliott will discuss infrastructure, partnerships, utilities,
resources and energy, and tell you what to buy and what to sell in 2008.
Click here or call 800-970-4355 and refer to priority code 011470 to attend
as our guest.
Also, be sure to check out our blog, At These Levels, for more noteworthy stories.
My readers have already seen profits of 61% in just two months from this government-protected monopoly that guarantees they will not have any competition until the year 2035!
But here’s the real kicker… this stock’s price should double in the next 6 months giving you 100% profit if you invest now.
Follow this link to see how you can play this moneymaker.
Special Invitation
We have a special invitation for our readers. KCI Communications, Inc., publisher of Growth Engines, is organizing an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal. Participants will have the opportunity to meet and chat with my colleagues Roger Conrad, Gregg Early, Neil George and Elliott Gue.
This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.
It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.
For more information, please click here or call 877-238-1270.