Relief
FALLS CHURCH, Va.–Two weeks ago in London I met with a couple of good friends who work in the financial industry. Over dinner one night, we talked about the upcoming Fed cut and about the state of the global economy.
One of them works for one of the biggest bond funds in the world. He was certain the Fed would cut interest rates by 50 basis points (bps)–it did–and he was also adamant that this would be the right thing to do.
Although I thought at the time that the Fed would cut by 25 bps, his rationale for 50 stayed with me. I became convinced as days passed.
His argument was that a central bank’s role (US or otherwise) isn’t limited to fighting inflation or striving for full employment. The role includes making sure the financial system operates smoothly.
In other words, in a situation like the present one for the global economy, the point isn’t to assign blame (i.e., to the late-tenure Greenspan for extremely low rates or the hard-core speculators), but to enable as rapid a return to normal conditions as possible.
He also spoke, colorfully, against the usual industry bears who always want an even bigger destruction to take place. The Nasdaq Composite fell by nearly 80 percent during the early 2000s meltdown. “What else did they want?” he asked.
I agree with him. I’ve been pleased with the way Fed Chairman Ben Bernanke has handled the situation since he took over for Alan Greenspan.
The Fed’s recent actions aim at helping the economic system, not saving the “unworthy” speculators. The US economy has been weak for a year now, and things won’t change overnight because of a cut of 50 bps or 100 bps. Economic data continues to be mixed, at best, and all indicators point to weaker consumer spending and a prolonged slowdown in the housing market. The latter won’t change because the Fed has cut rates. But the US can avoid a recession, and this is a worthy goal.
If achieved, the global economy will be able to perform relatively well and move on. After all, the rest of the world proved during the US slowdown this past year that it can shoulder the burden, helping the US improve its current account deficit and grow its exports in the process.
Asian Engine
Asia remains the global growth engine and will continue to be for a long time. The region’s economies are enjoying a multiyear economic boom that’s increasingly rooted in positive changes taking place in their respective domestic economies.
Most of the region’s companies are in great financial shape with great balance sheets, strong cash flows and low debt. Asia’s debt-to-equity ratio is around 20 percent.
Banks are flush with liquidity, and with loan-to-deposit ratios at all-time lows, there’s a lot of room to lend to the retail as well as the corporate sector.
After years of building their savings, households in Asia are ready to spend. High demand for housing is the obvious example; increasing demand for cars and other big-ticket goods make the point even clearer.
On the other hand, the lack of infrastructure in big parts of Asia (India, Indonesia, the Philippines, Vietnam, etc.) has created a huge need for investment in these sectors. Otherwise, the region’s economic growth potential will be hamstrung.
Given that the fundamentals of the Asian economies are extremely strong, the region is well positioned to withstand a US economic slowdown and even post great performance, which will allow time for a US recovery.
The SRI Portfolio is set up to take advantage of these developments. Short-term market gyrations notwithstanding, it should continue to provide solid gains.
The Markets
The financial markets are relieved; they got what they desired. What remains to be seen is if the world economy will be able to avoid a deep recession. There’s a very good chance it will.
Nevertheless, we have to be a little more defensive than usual and prepared to sacrifice some upside for risk protection on the downside. After all, Asia as a whole doesn’t offer tempting valuations, but they’re not insane either. And Asia also offers strong growth.
I expect a strong finish to 2007, especially if we clear October without incident. Risks are present, but, after all, investing is about risk and how to manage it.
Controlling portfolio volatility (i.e., beta) is of paramount importance right now. The Long-Term Portfolio’s beta is below 1 and offers protection without sacrificing growth. Follow the Fresh Money Buys (see below) for allocating your funds.
Company News
Newspaper publisher SCMP Group (OTC: SCPXY) reported earnings late last week, with profits rising 19 percent for the six months ending June 30. That performance could be the prelude for a strong year.
Hong Kong’s resilient economy allowed companies to spend more on advertising, driving SCMP revenues for the period.
SCMP’s principal activity is the publishing, printing and distribution of the South China Morning Post and the Sunday Morning Post, the leading English-language newspapers in Hong Kong with a combined market share of more than 90 percent. Revenue from both newspaper operations accounts for around 80 percent of SCMP Group’s earnings.
The company, controlled by the family of Malaysian billionaire Robert Kuok, should benefit from Hong Kong’s continued economic strength as well as from continuing advertising growth. Regarding the latter, the risks are on the upside: China is approaching the final countdown to the 2008 Olympics, which should prove a good time for business.
The company has almost no debt and maintains high operating margins of close to 30 percent. It also owns real estate properties that generate strong cash flows, with a big part of the cash usually returned to stockholders.
With a history of steadily raising dividends and currently offering a dividend yield of 5 percent, SCMP Group remains a buy.
Russia-based Alternative Holding Vimpel Communications (NSYE: VIP) is making a move into the Vietnamese wireless market. The new entity will be a joint venture among Vimpel, the Ministry of Public Security of Vietnam and The Millenium Global Solutions Group, a US company that’s already an investor in Vietnam.
This is a very positive development for Vimpel. Vietnam, with a population of 85 million, is one of the few large markets still relatively underpenetrated. Wireless use currently stands at around 30 percent. As China and India (two countries with similar characteristics) have shown, the long-term upside can be significant.
Vimpel’s new venture could give provide a foothold in one of the great investment stories of our time, that of Asian economic growth and development. Vimpel Communications is 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):
One of them works for one of the biggest bond funds in the world. He was certain the Fed would cut interest rates by 50 basis points (bps)–it did–and he was also adamant that this would be the right thing to do.
Although I thought at the time that the Fed would cut by 25 bps, his rationale for 50 stayed with me. I became convinced as days passed.
His argument was that a central bank’s role (US or otherwise) isn’t limited to fighting inflation or striving for full employment. The role includes making sure the financial system operates smoothly.
In other words, in a situation like the present one for the global economy, the point isn’t to assign blame (i.e., to the late-tenure Greenspan for extremely low rates or the hard-core speculators), but to enable as rapid a return to normal conditions as possible.
He also spoke, colorfully, against the usual industry bears who always want an even bigger destruction to take place. The Nasdaq Composite fell by nearly 80 percent during the early 2000s meltdown. “What else did they want?” he asked.
I agree with him. I’ve been pleased with the way Fed Chairman Ben Bernanke has handled the situation since he took over for Alan Greenspan.
The Fed’s recent actions aim at helping the economic system, not saving the “unworthy” speculators. The US economy has been weak for a year now, and things won’t change overnight because of a cut of 50 bps or 100 bps. Economic data continues to be mixed, at best, and all indicators point to weaker consumer spending and a prolonged slowdown in the housing market. The latter won’t change because the Fed has cut rates. But the US can avoid a recession, and this is a worthy goal.
If achieved, the global economy will be able to perform relatively well and move on. After all, the rest of the world proved during the US slowdown this past year that it can shoulder the burden, helping the US improve its current account deficit and grow its exports in the process.
Asian Engine
Asia remains the global growth engine and will continue to be for a long time. The region’s economies are enjoying a multiyear economic boom that’s increasingly rooted in positive changes taking place in their respective domestic economies.
Most of the region’s companies are in great financial shape with great balance sheets, strong cash flows and low debt. Asia’s debt-to-equity ratio is around 20 percent.
Banks are flush with liquidity, and with loan-to-deposit ratios at all-time lows, there’s a lot of room to lend to the retail as well as the corporate sector.
After years of building their savings, households in Asia are ready to spend. High demand for housing is the obvious example; increasing demand for cars and other big-ticket goods make the point even clearer.
On the other hand, the lack of infrastructure in big parts of Asia (India, Indonesia, the Philippines, Vietnam, etc.) has created a huge need for investment in these sectors. Otherwise, the region’s economic growth potential will be hamstrung.
Given that the fundamentals of the Asian economies are extremely strong, the region is well positioned to withstand a US economic slowdown and even post great performance, which will allow time for a US recovery.
The SRI Portfolio is set up to take advantage of these developments. Short-term market gyrations notwithstanding, it should continue to provide solid gains.
The Markets
The financial markets are relieved; they got what they desired. What remains to be seen is if the world economy will be able to avoid a deep recession. There’s a very good chance it will.
Nevertheless, we have to be a little more defensive than usual and prepared to sacrifice some upside for risk protection on the downside. After all, Asia as a whole doesn’t offer tempting valuations, but they’re not insane either. And Asia also offers strong growth.
I expect a strong finish to 2007, especially if we clear October without incident. Risks are present, but, after all, investing is about risk and how to manage it.
Controlling portfolio volatility (i.e., beta) is of paramount importance right now. The Long-Term Portfolio’s beta is below 1 and offers protection without sacrificing growth. Follow the Fresh Money Buys (see below) for allocating your funds.
Company News
Newspaper publisher SCMP Group (OTC: SCPXY) reported earnings late last week, with profits rising 19 percent for the six months ending June 30. That performance could be the prelude for a strong year.
Hong Kong’s resilient economy allowed companies to spend more on advertising, driving SCMP revenues for the period.
SCMP’s principal activity is the publishing, printing and distribution of the South China Morning Post and the Sunday Morning Post, the leading English-language newspapers in Hong Kong with a combined market share of more than 90 percent. Revenue from both newspaper operations accounts for around 80 percent of SCMP Group’s earnings.
The company, controlled by the family of Malaysian billionaire Robert Kuok, should benefit from Hong Kong’s continued economic strength as well as from continuing advertising growth. Regarding the latter, the risks are on the upside: China is approaching the final countdown to the 2008 Olympics, which should prove a good time for business.
The company has almost no debt and maintains high operating margins of close to 30 percent. It also owns real estate properties that generate strong cash flows, with a big part of the cash usually returned to stockholders.
With a history of steadily raising dividends and currently offering a dividend yield of 5 percent, SCMP Group remains a buy.
Russia-based Alternative Holding Vimpel Communications (NSYE: VIP) is making a move into the Vietnamese wireless market. The new entity will be a joint venture among Vimpel, the Ministry of Public Security of Vietnam and The Millenium Global Solutions Group, a US company that’s already an investor in Vietnam.
This is a very positive development for Vimpel. Vietnam, with a population of 85 million, is one of the few large markets still relatively underpenetrated. Wireless use currently stands at around 30 percent. As China and India (two countries with similar characteristics) have shown, the long-term upside can be significant.
Vimpel’s new venture could give provide a foothold in one of the great investment stories of our time, that of Asian economic growth and development. Vimpel Communications is 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