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Global Investment Strategist: Invest in the Asian Growth Engines of the 21st Century

By Jim Fink on March 21, 2011

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In the emerging market universe, I continue to like banks, especially Asian ones and domestic demand companies. Asia remains the most viable choice for the long-term oriented investor, as the growth story is not only strong but also structural in nature.

– Yiannis Mostrous, Global Investment Strategist

Asia is home to 3.5 billion people, one-third of the world’s population. Asia is now the world’s No. 1 growth story. It satisfies the world financial system’s demand for a source of cheap labor for the developed economies. This has created huge surpluses in Asian countries.  Many years of pent-up demand (over a half-century in the case of China) and growing urbanization have finally triggered a historic transformation toward domestic consumption. Farsighted investors will realize enormous profits by investing in companies that benefit from Asia‘s historic transformation.

The Rise of the Asian Consumer: Asia is the Best Place to Invest in the 21st Century

Consider the following set of ideal investment conditions in Asia:

  • A high savings rate.
  • Most Asian countries do not have social safety nets like Social Security. The population has been forced to save for their own retirement. As governments begin to provide more social services, the vast horde of private savings will be unlocked and available for consumption.
  • A large population in a demographic “sweet spot.”
  • The region’s dependency ratio (i.e., percentage of children and elderly comprising the total population) is still decreasing and it is not expected to stop or reverse its decline for many years. Furthermore, the segment of its population in its 30s to 50s (the high earners and spenders) is expected to grow dramatically in the next five to 10 years.
  • This demographic is primed for increased consumption.
  • Increasing Urbanization.
  • Asia is a huge region that’s urbanizing itself, leading to positive domestic demand trends, growth in construction and infrastructure, and steady income increases. Notice that excluding Japan, Asia’s 37 percent urbanization level is well below the world’s average of 50 percent. Asia, despite the big movement of people into cities and the economic growth from that migration, remains less urbanized than Africa. Thirty-three million people move to emerging Asian cities every year.

All of these elements portend a rise of the Asian consumer that will transform the global economy. The firmly entrenched belief that the world cannot grow without the American consumer being the sole dominant force will cost shortsighted investors the opportunity to identify and capitalize on an emerging, gigantic trend.

Strong Growth Leads to Strong Stock Market Returns

According to Goldman Sachs Chief Economist Jim O’Neill, China will surpass the United States in economic output in 2027, with India following by 2050. The decade from the end of 1999 to the end of 2009 is often referred to as “the lost decade” because many of the stock markets in the developed world – including the S&P 500 – lost money. But to investors in emerging markets, the just-completed decade was a profits bonanza! Just look at the difference between the returns investors made in a sampling of Asian stock markets versus markets in the developed Western world:

Country

Index

Percent Change:

1999 – 2009*

Annualized Return*

Russia

RTS

724.26%

23.46%

China

Hang Seng China Enterprise

550.20%

20.57%

India

BSE Sensex 30

226.58%

12.55%

Germany

DAX

21.86%

1.99%

France

CAC 40

-5.97%

-0.61%

United Kingdom

FTSE 100

-21.95%

-2.45%

United States

S&P 500

-24.10%

-2.72%

Japan

Nikkei 225

-38.62%

-4.76%

* Source: Bloomberg. Returns in U.S. dollar terms.  Price return only (no dividend reinvestment).

Without a doubt, the 21st century will be the “Asian Century.” The first decade saw Asian countries grow rich from exports and foreign direct investment. The second decade of the Asian Century will see Asian economic growth explode from domestic demand and a growing middle class. Investors today who have the insight and wherewithal to invest in Asia’s domestic consumption story will rake in massive profits.

You Need to Be Selective

Knowing about the Asian growth trend is not enough. As Wharton Professor of Finance Jeremy Siegel discusses in his book The Future for Investors, investors often overreact to good news, bidding stocks up until they trade far above their intrinsic value. He characterizes this phenomenon as the “growth trap.” For example, during the 1990s, China was the fastest growing economy in the world, yet was the worst performing stock market. Why? Because many investors bought “the growth story” without regard to the price that they paid. 

To be a successful investor in emerging markets, one must wait for reasonable valuations and identify the individual stocks that are best positioned from a financial and competitive standpoint to profit from the awesome growth that defines the Asian Century.

Yiannis Mostrous: An Asian Stock Market Expert

It was in response to this clear public need for expert and unbiased analysis of the emerging markets that led KCI’s Yiannis Mostrous to start Global Investment Strategist.  Yiannis was born in Greece and is a native Athenian. As such, he has a unique international perspective that most U.S.-born analysts don’t have. Yiannis is an expert on Asian financial markets, having published two books on the subject, The Silk Road To Riches: How You Can Profit By Investing In Asia’s Newfound Prosperity and The Rise of the State: Profitable Investing and Geopolitics in the 21st Century. Yiannis is also a veteran of the Hellenic Navy. He has been an equity analyst for many years, as well as worked in international project and venture capital financing. Plain and simple, Yiannis knows how to value companies, whether they are denominated in dollars, euros, yen, rupees, rubles, or renminbi. He understands first-hand the importance foreign exchange rates can play in calculating returns when investing in foreign companies. And he only recommends purchasing the best companies poised for growth at a reasonable price. 

In his free e-zine, Passport to Profits, Yiannis has often recommended “looking for companies with solid balance sheets and good growth potential.” Besides solid fundamentals, he is also ever sensitive to valuations. For example, back in March 2006 he advised his subscribers to sell their Brazilian stocks:

Everyone is mesmerized by the market and is trying to get extra money so they can play the market. Initial public offerings (IPOs) are soaring, and people can’t get enough. Long-term businessmen have found this the opportune time to sell their businesses, as valuations are off the charts. It seems that after a three-and-a-half year bull market and 350 percent gains, no one wants to be left behind. Brazil is now a market in which investors need to take some profits off the table.

He even suggested shorting Brazil.  The iShares MSCI Brazil Index Fund (NYSE: EWZ) closed at $39.45 that day.  By June 13th, just three months later, the ETF had fallen more than 20% to $31.50. Nice call, Yiannis!

Complete Portfolio with “Fresh Money” Buy List

The Global Investment Strategist Long-Term Portfolio currently has 29 companies in it, which are fully diversified among 14 different foreign countries and several industries. Although Yiannis advises buying the entire portfolio, one of the things I like so much about Global Investment Strategist is that he offers a “fresh money buy list” for those of us who may want to start off buying just a few stocks. This is so refreshing, since all too often I see investment newsletters that just provide a huge list of stocks with no guidance as to what to buy first. In contrast, Yiannis tells you exactly which country, which industry, and which stock to buy first right now.

Hedges: A Unique Feature

Another thing that is unique about Global Investment Strategist is that it offers subscribers a number of hedge investments that will protect their investment portfolios from losses during inevitable market declines.  Emerging market stocks are immensely profitable, but the fact remains that they are often volatile and it is nice to have some investments that zig when emerging markets zag.  As I write in my free report on asset allocation, the less downside volatility in your portfolio, the greater your wealth accumulation will be down the road.

One of Yiannis’ favorite hedges is gold:

I’ve long maintained that gold is one of the main hedges long-only investors–especially for those with positions in emerging markets–can use to balance the long exposure. With the problems afflicting the world’s main currencies, a gold hedge is of paramount importance.

I like an investment advisor who cares as much about my downside risk as my upside potential.

An Independent and Sometimes Contrarian Viewpoint

I don’t want an advisor who just mimics opinions he reads in the news. Instead, I want someone who analyzes information independently and isn’t afraid to go against consensus when he feels that is where the facts lead him. Yiannis is such an independent voice.

Case Study: China

Take, for example, the recent concern in the media concerning China’s economy. In late 2008, the Chinese government initiated a huge fiscal stimulus equal to 14 percent of Chinese GDP. In the United States, 14 percent of GDP would be equivalent to a $2 trillion stimulus or about triple the size of the actual U.S. stimulus plan. As a result of China’s massive stimulus, the Chinese economy was one of the first to emerge from recession and has – according to some – begun to overheat. A recent Bloomberg article sums up the concern this way:

Consumer prices rose at an annual 4.9 percent pace in February and output increased 14 percent in the first two months of 2011, according to the statistics bureau. Producer prices jumped 7.2 percent last month, the most since September 2008.

Pretty scary stuff. Reading this article would make me much less likely to invest in Chinese stocks.

But I would be wrong.

In fact, Yiannis explains that now is the perfect time to invest in China:

The main reason for China‘s underperformance has been investors’ fears that the Chinese housing market will soon be blowing up, taking with it the rest of the Chinese economy. This will not happen — at least not this year — and most probably not next year, either.

The pent up demand in China is still strong, and that the absence of home equity loans, option ARMs, extensive securitization and the like from the Chinese housing market make an Anglo-Saxon like market collapse to seem, for now, farfetched.

Global Investment Strategist is a True Value

It is this sort of trenchant, reasoned, and contrarian analysis that makes Global Investment Strategist  a “must-read” for any serious emerging markets investor. Where exactly does China rank in Yiannis’ “Fresh Money” buy list? You’ll need to take a trial subscription to find out!

You can obtain a one-year subscription to Yiannis’ insightful emerging markets investment service, chock full of long-term “core” recommendations, a metals and mining portfolio, permanent portfolio hedges, and constantly-updated rankings of the best foreign countries to invest in and the “Top 5 Stocks to Buy Now”, for only $695 (a $300 savings). You can’t find this collection of information anywhere else.

Don’t be left behind. Participate in Asia, the greatest growth story of the 21st Century. Try Global Investment Strategist  risk-free today!

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