2 + 2
The markets can go either way at this point.
There are no established rules for central banks and policymakers to improve the economic environment. Policymakers face the great dilemma of having to help Main Street without rewarding the assorted speculators who are now paying the price, as they should be.
We’re waiting for the US Federal Reserve’s rate cut, which should happen next week. Although the futures markets are pricing in a 50 basis point move, I expect the Fed will take a more gradual approach, 25 basis points.
Regardless, be ready for more rate cuts in the next few quarters as the US economy’s strength continues to deteriorate. If the Fed adopts the gradual approach, we should get two cuts this year and two in early 2008.
Although the case for a recession this year is a strong one, I don’t think it will materialize. With a big election year coming, nobody in elected office wants a full-scale recession. The rest of the world can handle a US economic slowdown, but there will be a lot of blood in the streets if the US economy collapses.
But Fed rate cuts can be very positive for markets, and if there are signs that the economy has a chance, the upside may be spectacular.
In an Asia ex-Japan context, there are sectors that perform well after the Fed cuts rates. Ironically, these are sectors that most investors have shied away from, namely utilities, telecoms and financials. The SRI Portfolios have plenty of exposure to these sectors.
The following are great buys now (in the order listed), while the Fed prepares to cut interest rates:
Occasionally I take profits off the table without selling out of positions completely. In other words, if you have any profits in a stock, take them and stay with the initial value of your investment.
If you have profits in Datang International Power (OTC: DIPGY) and Vimpel Communications (NYSE: VIP) take them now.
Don’t sell out completely because both companies are perfectly positioned in their respective markets. If you don’t own them, feel free to buy them at current levels.
But given that Datang is up 90 percent since I initially recommended it, and Vimpel is up 200 percent, long-time subscribers should feel free to take something out of them now.
Japan’s Bad Dream
Japanese Prime Minister Shinzo Abe finally resigned, apparently unable to withstand the pressure from the anti-reform factions of his party. It looks like he walked into a trap by promoting a lot of the anti-reform party members to key positions in the cabinet in the last government reshuffling.
For people like me who have been watching Japan trying to come out of its frustrating economic past, this is a setback. Abe proved that he was no Koizumi, as he was unable to pass a lot of his reform initiatives. This is one reason why Japan hasn’t been featured prominently in the SRI Fresh Money Buys for some time now.
I’ll be reviewing the situation in Japan and will have a full report in coming weeks. For now, if you happen to own any of the Japanese stocks recommended in SRI, continue to hold them.
Company News
Ericsson (NSDQ: ERIC) announced strong projected growth for the reminder of the year and reiterated its previous target for 5 percent growth in its main market for 2007.
Given that the company’s management has avoided exaggerated comments in the past, I expect its projections to materialize.
Sweden-based Ericsson develops and produces advanced systems and products for wired and mobile communications in public and private networks. The product line includes digital and analog systems for telephones and networks, microwave radio links, radar surveillance systems and business systems. It also produces mobile phones through a joint venture with Sony.
The company operates in one of the most promising segments of the global economy, where the demands of bigger and better networks increase almost daily.
It’s currently upgrading networks for more than 50 phone companies, with about 6 million customers signing up for faster mobile access each month globally. Industry experts expect mobile subscribers to surpass 5 billion in the next five years.
Investors in general continue to underestimate the company’s growth potential. I view Ericsson as a core holding for long-term, growth-oriented investors–wireless telecom is one of the best long-term growth stories. The beauty is that this growth story is applicable to both developed and developing economies.
Emerging markets are important because they continue to build huge wireless networks, with China and India at the forefront. Ericsson is the world’s leading architect of mobile systems (the premium segment in telecommunications) and should be the big beneficiary. Buy Ericsson.
ABB (NYSE: ABB) announced that most of the goals it had set for 2009 have already been met–a great achievement indeed. ABB, the world’s biggest builder of power networks, expects annual earnings growth of at least 15 percent for the next five years.
The efforts of developing countries to improve their electrical grids in order to satisfy strong demand have contributed immensely in ABB’s good fortune.
China alone is planning to spend USD33 billion this year on grid extensions and improvements; expect investment of the same magnitude for the rest of Asia. (India loses 32 percent of its energy during transmission and distribution and must improve.) ABB remains one of the best-positioned companies to benefit from this explosive growth in electricity demand.
The company has a lot of cash on its balance sheet and a potential acquisition can’t be ruled out. Management admitted that it’s looked at a lot of candidates but that prices remain high.
As a result, returning more money to stockholders remains a real option. Nevertheless, reinvesting in the company’s business is the focus, and it’s a desirable one. Buy ABB.
Mobile TeleSystems (NYSE: MBT) reported strong quarterly earnings and announced that it will continue buying back shares, up to 10 percent of outstanding American Depositary Receipts (ADRs).
Mobile TeleSystems, with 50 million subscribers, is the largest cellular operator in Eastern Europe. The company has licenses in 87 Russian regions, Ukraine, Belarus, Uzbekistan and Turkmenistan, covering a population of more than 233 million people. It remains one of two SRI recommendations (along with Vimpel Communications) for exposure to cell phone growth in the region.
The company has been investing heavily in its regions of operation; I expect it to produce even better results as it consolidates operations and takes advantage of its markets’ growth. Mobile TeleSystems remains a buy.
Another Portfolio holding, Lukoil (OTC: LUKOY), reported good earnings today. Profits were up 8.4 percent year-over-year on a 9.9 percent surge in sales for the quarter.
Lukoil is one of Russia’s largest integrated oil companies in terms of reserves, with 15.9 billion barrels in oil and 4.4 billion barrels of oil equivalent in gas reserves, and accounts for almost 20 percent of Russia’s total oil production.
The company has the largest international upstream portfolio among the Russian energy companies. It also operates 1,658 retail stations in Russia and 4,135 abroad
Last year, Lukoil announced a USD112 billion capital expenditure plan for the next decade. The company plans to continue buying refineries in Russia as well as the rest of Europe, Asia and the Americas. It also plans on becoming Russia’s second-largest gas producer, after Portfolio holding OAO Gazprom (OTC: OGZPY). Buy Lukoil for long-term growth.
Hengan International (OTC: HEGIF) also reported very strong earnings growth, with net profit increasing by 42 percent. The numbers are particularly important because raw materials costs have been high this year.
Established in 1985, Hengan is the largest sanitary napkin manufacturer and the second-largest disposable baby diaper manufacturer in China; it’s also a leading producer of high-end tissues. It started making sanitary napkins in China in the early 1990s, effectively creating the market, and built a strong brand name and distribution network.
A lot of investors have been skeptical of Hengan this year, but the company’s performance will be a wake-up call and I expect more funds being allocated Hengan’s way. A play on China’s domestic demand story, Hengan International remains a buy.
Fresh Money Buys
Because the investment process is constant, if you’d like to add to your positions in Portfolio recommendations or allocate new funds in a diversified way, focus on the following markets (consult the Portfolio tables for details), in order (for both countries and sectors):
There are no established rules for central banks and policymakers to improve the economic environment. Policymakers face the great dilemma of having to help Main Street without rewarding the assorted speculators who are now paying the price, as they should be.
We’re waiting for the US Federal Reserve’s rate cut, which should happen next week. Although the futures markets are pricing in a 50 basis point move, I expect the Fed will take a more gradual approach, 25 basis points.
Regardless, be ready for more rate cuts in the next few quarters as the US economy’s strength continues to deteriorate. If the Fed adopts the gradual approach, we should get two cuts this year and two in early 2008.
Although the case for a recession this year is a strong one, I don’t think it will materialize. With a big election year coming, nobody in elected office wants a full-scale recession. The rest of the world can handle a US economic slowdown, but there will be a lot of blood in the streets if the US economy collapses.
But Fed rate cuts can be very positive for markets, and if there are signs that the economy has a chance, the upside may be spectacular.
In an Asia ex-Japan context, there are sectors that perform well after the Fed cuts rates. Ironically, these are sectors that most investors have shied away from, namely utilities, telecoms and financials. The SRI Portfolios have plenty of exposure to these sectors.
The following are great buys now (in the order listed), while the Fed prepares to cut interest rates:
- Utilities and Telecom: Korea Electric Power (NYSE: KEP), Chunghwa Telecom (NYSE: CHT), Singapore Telecom (OTC: SGAPY)
- Real Estate: Cheung Kong (OTC: CHEUY)
- Financials: Shinhan Financial (NYSE: SHG), United Overseas Bank (OTC: UOVEY)
Occasionally I take profits off the table without selling out of positions completely. In other words, if you have any profits in a stock, take them and stay with the initial value of your investment.
If you have profits in Datang International Power (OTC: DIPGY) and Vimpel Communications (NYSE: VIP) take them now.
Don’t sell out completely because both companies are perfectly positioned in their respective markets. If you don’t own them, feel free to buy them at current levels.
But given that Datang is up 90 percent since I initially recommended it, and Vimpel is up 200 percent, long-time subscribers should feel free to take something out of them now.
Japan’s Bad Dream
Japanese Prime Minister Shinzo Abe finally resigned, apparently unable to withstand the pressure from the anti-reform factions of his party. It looks like he walked into a trap by promoting a lot of the anti-reform party members to key positions in the cabinet in the last government reshuffling.
For people like me who have been watching Japan trying to come out of its frustrating economic past, this is a setback. Abe proved that he was no Koizumi, as he was unable to pass a lot of his reform initiatives. This is one reason why Japan hasn’t been featured prominently in the SRI Fresh Money Buys for some time now.
I’ll be reviewing the situation in Japan and will have a full report in coming weeks. For now, if you happen to own any of the Japanese stocks recommended in SRI, continue to hold them.
Company News
Ericsson (NSDQ: ERIC) announced strong projected growth for the reminder of the year and reiterated its previous target for 5 percent growth in its main market for 2007.
Given that the company’s management has avoided exaggerated comments in the past, I expect its projections to materialize.
Sweden-based Ericsson develops and produces advanced systems and products for wired and mobile communications in public and private networks. The product line includes digital and analog systems for telephones and networks, microwave radio links, radar surveillance systems and business systems. It also produces mobile phones through a joint venture with Sony.
The company operates in one of the most promising segments of the global economy, where the demands of bigger and better networks increase almost daily.
It’s currently upgrading networks for more than 50 phone companies, with about 6 million customers signing up for faster mobile access each month globally. Industry experts expect mobile subscribers to surpass 5 billion in the next five years.
Investors in general continue to underestimate the company’s growth potential. I view Ericsson as a core holding for long-term, growth-oriented investors–wireless telecom is one of the best long-term growth stories. The beauty is that this growth story is applicable to both developed and developing economies.
Emerging markets are important because they continue to build huge wireless networks, with China and India at the forefront. Ericsson is the world’s leading architect of mobile systems (the premium segment in telecommunications) and should be the big beneficiary. Buy Ericsson.
ABB (NYSE: ABB) announced that most of the goals it had set for 2009 have already been met–a great achievement indeed. ABB, the world’s biggest builder of power networks, expects annual earnings growth of at least 15 percent for the next five years.
The efforts of developing countries to improve their electrical grids in order to satisfy strong demand have contributed immensely in ABB’s good fortune.
China alone is planning to spend USD33 billion this year on grid extensions and improvements; expect investment of the same magnitude for the rest of Asia. (India loses 32 percent of its energy during transmission and distribution and must improve.) ABB remains one of the best-positioned companies to benefit from this explosive growth in electricity demand.
The company has a lot of cash on its balance sheet and a potential acquisition can’t be ruled out. Management admitted that it’s looked at a lot of candidates but that prices remain high.
As a result, returning more money to stockholders remains a real option. Nevertheless, reinvesting in the company’s business is the focus, and it’s a desirable one. Buy ABB.
Mobile TeleSystems (NYSE: MBT) reported strong quarterly earnings and announced that it will continue buying back shares, up to 10 percent of outstanding American Depositary Receipts (ADRs).
Mobile TeleSystems, with 50 million subscribers, is the largest cellular operator in Eastern Europe. The company has licenses in 87 Russian regions, Ukraine, Belarus, Uzbekistan and Turkmenistan, covering a population of more than 233 million people. It remains one of two SRI recommendations (along with Vimpel Communications) for exposure to cell phone growth in the region.
The company has been investing heavily in its regions of operation; I expect it to produce even better results as it consolidates operations and takes advantage of its markets’ growth. Mobile TeleSystems remains a buy.
Another Portfolio holding, Lukoil (OTC: LUKOY), reported good earnings today. Profits were up 8.4 percent year-over-year on a 9.9 percent surge in sales for the quarter.
Lukoil is one of Russia’s largest integrated oil companies in terms of reserves, with 15.9 billion barrels in oil and 4.4 billion barrels of oil equivalent in gas reserves, and accounts for almost 20 percent of Russia’s total oil production.
The company has the largest international upstream portfolio among the Russian energy companies. It also operates 1,658 retail stations in Russia and 4,135 abroad
Last year, Lukoil announced a USD112 billion capital expenditure plan for the next decade. The company plans to continue buying refineries in Russia as well as the rest of Europe, Asia and the Americas. It also plans on becoming Russia’s second-largest gas producer, after Portfolio holding OAO Gazprom (OTC: OGZPY). Buy Lukoil for long-term growth.
Hengan International (OTC: HEGIF) also reported very strong earnings growth, with net profit increasing by 42 percent. The numbers are particularly important because raw materials costs have been high this year.
Established in 1985, Hengan is the largest sanitary napkin manufacturer and the second-largest disposable baby diaper manufacturer in China; it’s also a leading producer of high-end tissues. It started making sanitary napkins in China in the early 1990s, effectively creating the market, and built a strong brand name and distribution network.
A lot of investors have been skeptical of Hengan this year, but the company’s performance will be a wake-up call and I expect more funds being allocated Hengan’s way. A play on China’s domestic demand story, Hengan International remains a buy.
Fresh Money Buys
Because the investment process is constant, if you’d like to add to your positions in Portfolio recommendations or allocate new funds in a diversified way, focus on the following markets (consult the Portfolio tables for details), in order (for both countries and sectors):
- South Korea (electric power, banking)
- Hong Kong (real estate, publishing, infrastructure)
- Malaysia (ETFs)
- India (pharmaceuticals)
- Russia (telecommunications, energy)
- Taiwan (technology, telecommunications)
- Europe (oil, pharmaceuticals, industrials, communications equipment)
- Singapore (telecommunications, banking, industrial)
- Japan (industrials, banking)
- China (consumer, coal, power, oil, water)
- Macau