Extreme selling conditions usually set the stage for a rally, which can be rather substantial when a lot of cash is on the sidelines, a lot of short positions need to be covered and marginally positive news emerges.

These three conditions are currently in place in Asia as well as lower valuations and subdued inflationary pressures. The latter is quite important. In May, food inflation in particular was the main topic of discussion around the world.  

At the time, we were witnessing the so-called rice scare; even US retailers were rationing rice purchases. Thai rice was selling for USD1,060 per ton. Now the price is around USD760 per ton. During this time, latecomers also discovered the food trade in Asia, which pushed food prices higher with a vengeance.

Now the chief concern is growth slowdown, which should be expected. But there’s a possibility that the fast-and-furious selloff is the market’s way of discounting that.

If this is true, the market has reached its lows for this cycle. And if this reporting season proves better than the disaster most investors expect, Asia will give us a strong bounce.

India has been among my favorites for a long time, but we’ve been generally absent from its market for two reasons. The first: We made a lot of money early and decided not to fight for more when new investor blood entered the market last year. The second: To a certain degree, the Indian economy is a victim of its own success. The market rallied hard as Indian entrepreneurs took their businesses to the next level.

Furthermore, the country’s financial system had the mechanism to allow retail lending to a wide range of people, democratizing access to capital. The result was explosive growth that led to potential financial troubles such as high inflation, financial imbalances and red-hot growth. The market reacted accordingly, and India has been one of the worst performing markets in Asia this year, along with the Philippines and Vietnam.

A bigger problem is the inability of the government to close the civilian nuclear deal with the US because of opposition coming from India’s political left. Quite a few senators have also been skeptical of the deal.

But the government has just won the trust vote in Parliament with 275 votes in favor and 256 against. This will allow the country to move ahead with the nuclear treaty, which will benefit the economy’s energy needs.

Theoretically, the government should have an easier time acquisitioning market reforms going forward. The financial sector in particular will benefit from such a move, which is why the market has been gaining ground of late. 

This development will help improve short-term sentiment, but long-term investors should keep in mind that issues in India take time to resolve. I’ve always viewed this as a positive factor because it’s helped India avoid the boom-and-bust cycles so familiar to other emerging markets.

But the recent selloff is giving us the opportunity to add one more position to our India holdings: ICICI Bank (NYSE: IBN). I’ve recommended this company before, and I view it as one of the stronger private banks in India. It also offers decent insurance exposure, a sector that has strong, long-term potential in India because penetration rates remain low. Buy ICICI Bank at current prices.

Source: Bloomberg

The recent selloff has also presented an opportunity to buy into the South Korean market. My favorite stock is Shinhan Financial Group (NYSE: SHG).

South Korea remains an unloved market for the majority of investors, which typically gives longer-term investors reason to buy. With the KOSPI Composite Index near the 1,500 level, institutional and retail investors should look for value in this market. I also expect local pension funds to buy in aggressively at these levels. Buy Shinhan Financial Group at current prices.

We’ve been stopped out from our hedge short trade on HSBC for a 5 percent gain. The stop was loosely placed to allow us to stay in the trade as long as the market was weak. Remember that these shorts are viewed as hedging positions in a long-only portfolio and, therefore, aren’t aggressively traded.

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, in order (for both countries and sectors). Consult the Portfolio tables for details.

• Russia (energy, telecommunications)
• Hong Kong (banking, real estate, infrastructure)
• India (banking, pharmaceuticals)
• Japan (banking, insurance)
• China (consumer, telecommunications, port, machinery, oil, e-commerce, coal)
• Taiwan (ETF)
• Philippines (telecommunications, real estate)
• South Korea (banking)
• Singapore (banking, telecommunications, industrial)
• Vietnam (ETF)
• Cambodia (casino/hotels)
• Macau (casino/hotels)