Why You Must Invest in China, Asia

By: Tony_Sagami

As an investor, you have choices. Lots of them.

One of the most important choices is where to allocate your dollars around the globe. It comes down to three choices: North America, Europe, and Asia.

Sure, you could add in Africa, the Middle East, and South America, but the investment opportunities are much more limited in those areas. So what is the economic outlook for the three top continents?

According to the World Bank, it expects the total global economy to grow by 2.9% to 3.3% in 2010 and 2011, but improving to 3.2% to 3.5% in 2012.

By the way, global GDP dropped by 2.1% in 2009.

The World Bank expects North America and Europe, which the World Bank describes as “high income” continents, to grow by 2.1% to 2.3% this year.

Developing economies, however, are expected to grow 5.7% to 6.2% a year from 2010-2012. The fastest growth of all will come from the East Asia and Pacific region, which the World Bank expects to grow by 8.7% in 2010 and by 7.8% in 2011.

The driver of that region’s growth, of course, is China, which the World Bank expects to grow by 9.5% this year.

The World Bank has a small army of brilliant economists planted around the globe, but I always look for confirmation. In China, confirmation of that robust growth is everywhere. In just the LAST week, I learned:

• Foreign direct investment in China rose for a 10th month in May. Foreign companies, like Pepsi that announced it will spend $2.5 billion in China in the next three years to build new factories, are eager to tap into China’s growth and are building factories and stores all over China.
• China is rapidly shedding its dependence on exports from its improving domestic economy. Retail sales rose by 18% in May, the third straight month of rising numbers. Rising wages are behind that growth. Example: More than 20 Chinese provinces and cities have raised minimum wages this year.
• China has matured into the largest auto market in the world. Passenger-car sales jumped by 26% to 1.04 units in May, compared to the same period last year.
• China’s export business is taking off too. Exports surged by almost 50% in May to $19.5 billion. Exports to Europe, China’s largest trading partner, grew by 34.4% and exports to the U.S. increased by 24.8%.

China has become the largest auto market in the world.

So which do you think is the most productive continent to invest your money? Europe with its expanding debt crisis and slow growth? The free spending U.S., whose national debt is on track to exceed its total economic output in a matter of months?

Or in Asia, where economic growth is strong, vibrant, and in my view, set to last for several more decades?

The answer is very clear to me. You need to keep a significant chunk of your equity portfolio in Asia. That doesn’t mean that you should sell 100% of your U.S. and European stocks because some U.S. companies, like Yum Brands and Tiffany, are doing gangbuster business in Asia.

What percentage of your portfolio you devote to Asia is a very personal decision, but I think anything less than 25% is a mistake and dooming your portfolio to underperformance, if not outright losses.

How should you go about including Asia in your portfolio? There are dozens of Asia-focused exchange traded funds (ETFs) and I’ve talked about them in this column several times.

ETFs are good, but I believe you will do much, much better by cherry picking Asia’s best companies.

First of all, there are more than 200 Chinese companies listed on U.S. exchanges like the NYSE, Nasdaq, and over-the-counter market, which means you don’t need to open a foreign trading account. It is as easy (and cheap) to buy 100 shares of China Mobile (NYSE:CHL) as it is to buy General Electric (NYSE:GE).

Here are some other examples: PetroChina (NYSE:PTR), Duoyuan Global Water (NYSE:DGW), New Oriental Education (NYSE:EDU), Mindray Medical (NYSE:MR), General Steel (NYSE:GSI), and China Housing & Land (Nasdaq:CHLN).

And that doesn’t include well-known Japanese companies like Toyota (NYSE:TM) and Sony (NYSE:SNE) or Korean companies like LG Philips (LPL).

A bevy of Asian companies are prospering on a growing demand for energy and technology.

Better yet is a very steady stream of hot-Chinese companies selling their IPOs on the NYSE and Nasdaq. Last week, for example, a company named China New Borum Corporation (Nasdaq:BORN) went public on the Nasdaq.

China New Borum is the largest wholesale supplier of corn and grain-based alcohol in China. This raw alcohol is used to make baijiu, China’s national drink that has an alcohol content of 18% to 60%!

Long-time readers of this column may remember my head-throbbing experience I had with baijiu during my trip to Xian last November:

Each one took turns making toasts, thanking me for my interest in their company, best wishes for each other’s business success, generously applauding my mediocre Chinese language skills, wished me a safe journey home and insulted some Wall Street snobs that refused to drink baijiu.

With each toast, you are expected to drain your small glass that holds about a half a shot of booze. The first two or three went down like water (famous last words) but after about the tenth or twelfth toast … I was starting to feel very … very DRUNK.

Neither I nor my Asia Stock Alert subscribers own China New Borum … yet. Baijiu is BIG business in China and when the time and price is right, China New Borum is a stock that I’d love to own.

If you’d like to be kept informed of these Asian IPOs, the best place to learn about them is at either Finance Asia (www.financeasia.com) or on my Twitter page. It is easy and free to sign up. Go to http://twitter.com/Tony_Sagami to sign up for my Twitter feeds.

Like any IPO, there are additional risks associated with buying into a young company, but the rewards have been and can continue to be tremendous.

Best wishes,

Tony

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