FALLS CHURCH, Va.–The most positive story of the week has been the massive stimulus package China announced last Sunday. I posted initial comments on the plan to the At These Levels blog on Monday. As I’ve mentioned here quite often, China is trying to bolster its own economy and can’t save the Western financial system and cushion it against the changes it’s going through.

It’s clear that the turn toward socialist-oriented solutions forecast here and here is now becoming reality. US authorities are in full socialization mode, where the capitalist model is being thrown out of the window. Look at the actions, not the words. The more irresponsible a company or individual has been during the past 10 years, the better its chances of being saved. Even the grotesque US automakers will be bailed out, for the nth time.

Market mechanisms were only used on the upside, with the US Federal Reserve providing the proverbial punch bowl during its “golden days” under the charismatic orchestration of Maestro Greenspan. The results are well known now, and the state has to come to the rescue.

True, we’ve reached a point where very few alternatives are available, and the state hasn’t many options. But being an advocate of free markets, it’s been devastating for me to witness that free market mechanisms weren’t given a chance to adjust the exuberance of the past eight years.

That said, every major market bottom has seen social changes taking place, and the present will prove no different. When we’re done with this crisis our economic life won’t be the same.

Standard Chartered (London: STAN, Hong Kong: 2888, OTC: SCBFF) has been doing business in Asia, Africa and the Middle East for more than 100 years.

It’s an international bank focused on retail and corporate banking and treasury activities. Although domiciled in the UK, its biggest single concentration of customers and profits is in Hong Kong. The group’s strategy is to continue to develop its consumer banking franchises while maximizing profitability in its historically strong wholesale operations.

Source: Standard Chartered

More than 40 percent of its retail income is generated by deposits and related fees. Its income streams are highly diversified, with no consumer or wholesale geography contributing more than 9 percent of revenues, and its loan/deposit ratio is 85 percent. The bank offers pure exposure to some of the most dynamic areas in the emerging market world and is run in a prudent manner, especially compared to most of its competition.

Furthermore, the Asian consumer is clearly in less trouble than his UK or US counterpart, and, given the longer-term growth potential, it seems to me that this is the kind of exposure we should be looking for at these levels.

That said, the global recession will hurt the company’s business as economic activity slows down in Asia and the rest of the emerging universe. The company’s well diversified loan book and its limited exposure to toxic paper should provide some cushion.

The stock has been sold off violently this year, as the chart below indicates. As a result, valuations are quite attractive; the shares trade five times trailing earnings and 1.5 times tangible book value. The short-term downside is 20 to 50 percent. Although I don’t anticipate such an outcome, you should be aware of it as you make your decision. Standard Chartered, a new addition to the Silk Portfolio, is a buy at current prices.

I’m selling Bank of China Hong Kong (Hong Kong: 2388, OTC: BHKLY) from the Portfolio because the market still doesn’t appreciate its defensive characteristics. Consequently the company shouldn’t do as well on the upside, either.

PT Telekom Indonesia (NYSE: TLK) reported that third quarter revenues declined 1 percent year-over-year, while earnings before interest, taxes, depreciation and amortization (EBITDA) were down 13 percent. The weakness is a result of increased competition and rising marketing expenses.

Nevertheless, PT Telekom is a good company to have exposure to during turbulent times because it offers one of the strongest balance sheets in the region. Low debt levels will work to its advantage, as smaller competitors need to borrow more in order to support growth.

PT Telekom has been very aggressive in growing its broadband business, and its efforts have been successful. The company forecasts at least another 1.6 million subscribers are ready to make the move to ADSL service. 

The company’s dividend yield of around 9 percent is also a big positive, as is its ongoing share buyback program of 3 percent. Valuations are also attractive with the stock trading at a trailing price-to-earnings (P/E) ratio of 9. PT Telekom Indonesia remains a buy.

Philippine Long Distance Telephone (NYSE: PHI) reported 5 percent growth in revenues year-over-year and solid EBITDA growth of 8 percent.

The company remains the biggest telecom operator in the country, with a 70 percent market share in the fixed line market and 60 percent in the cellular market. It offers a 10 percent dividend yield while trading at an undemanding 11.5 P/E. Buy Philippine Long Distance Telephone.

Although consumer staples in the developed markets are viewed as defensive and low growth, in the developing world owning them provides long-term growth potential. Hengan International (Hong Kong: 1044, OTC: HEGIF) has been the sector favorite here for almost two years, and I continue to like it.

Hengan is the largest personal hygiene product player in China. It’s No.1 in tissues and sanitary napkins and No. 2 in disposable diapers. Its market share in sanitary napkins rose from 10.7 percent in 2006 to 11 percent in 2007; in tissue its share rose from 6.8 percent in 2006 to 8.2 percent in 2007.

The economic slowdown shouldn’t affect the company in a material way, while the government’s decision to raise the standard of living in rural areas will also be beneficial, especially long term. Hengan offers affordable products and has an extensive nationwide sales network with a strong presence in lower-tier markets.

Weakness in commodities has led to lower raw materials costs and better margin expansion. The prices of pulp, petrochemicals and packaging, which represent 85 percent of costs, are significantly lower.

Hengan has a strong balance sheet and cash flow with net cash in hand of HK2.3 billion. The company plans to spend HK600 million to HK700 million on capital expenditures. The company is also looking for acquisition targets in an effort to strengthen its market position and leadership. A direct play on the Chinese consumer, Hengan International is a buy.

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.

• China (machinery, Consumer, Insurance, Banks, coal, port, e-commerce)
• Hong Kong (real estate, banking)
• Russia (energy, telecommunications)
• India (pharmaceuticals)
• Japan (banking)
• Philippines (telecommunications)
• Taiwan (ETF)
• Indonesia (Telecom)
• Singapore (Industrial)
• Vietnam (ETF)
• Cambodia (casino/hotels)
• Macau (casino/hotels)