In this 4-hour global investing intensive, Jeffrey Everett, Neil George, Nicholas Vardy, Ralph Oberbannscheidt, and Robert Hsu take on the globe, analyzing the best regions and sectors. Find out which corners of the world are looking up, profit-wise…
Jeffrey Everett, Templeton, Chief Investment Officer, Templeton Global Equity Group, advised attendees that demographics were the key to making money in the next few years – especially in East Asia Pacific and South Asia.
He likened the Asian marketplace to the soaring demand in America in the 1980’s. Growing consumer confidence is leading to higher property values and expanding incomes, which have resulted in increasing bank deposits in countries such as Malaysia, Indonesia and Thailand. At the same time, deposits have significantly fallen in the US.
Stock participation is on the rise throughout Asia, exemplifying the generational change on both borrowing and spending. Growth is likely to be sustained by foreign investments and Asia’s growing middle class. Aided by deregulation, improved transparency, tame inflation, expanding exports, Everett opined that Asia will be a great opportunity for investors in the next 10 years.
However, investing in Asia does not come without its own endemic worries, including the lack of credit bureaus, outlays from pension funding as the population ages, and various political and currency risks. That being said, Everett stated further that both politics and currency issues seem to be improving across the board.
In determining the best places for investors to put their money, Everett quoted Sir John Templeton, saying, “Where to look: In bull markets born of pessimism”. With that in mind, he gave several investment recommendations: Japan’s Takeda Pharmaceutica (TKPHF), Taiwan’s Lite-On Technologies (LOTGF), India’s Reliance Industries (traded on Indian exchanges), South Korea’s Kookmin Bank (KB), China’s Cheun Kong and Shenhua Energy (Chinese exchanges), and Singapore’s Parkway Holdings (Singapore exchange). Everett also mentioned that investors might utilize the Templeton Growth fund (TEPLX), Templeton Foreign fund (TEMFX), and Developing Markets Trust (TEDMX) for diversification into Asian investments.
Neil George, Editor, Personal Finance and By George! took issue with the way financial advisors view international investments – as different animals than those in the US. Instead, George thinks investors should look at their entire portfolio as an investment in the best vehicles for a particular time period – whether they are US companies or global businesses.
George stated that he doesn’t ignore the local marketplace, but he also doesn’t go out of his way to find particular investments in specific markets.
His first step when analyzing an investment is simply to determine if he will ‘get paid’, which is why he often begins with bonds. He searches for undervalued bonds that pay a high rate of cash through a coupon or interest.
George addressed the Canadian Energy Trusts in terms of the new tax regulations that begin phasing in around 2011. He’s not yet ready to jump back in wholeheartedly, but noted that changes are afoot, including the halving of dividends, as well as steady M&A, are making valuations more competitive once again. He advised investors to find out which trusts are making changes to become a corporation, and then proceed cautiously.
He shared some of his favorite trusts and income funds with attendees: Alliance Bernstein Global High Income Fund (AWF), Templeton Emerging Markets Income Fund, (TEI), Vermilion Energy Trust (VETMF), Arc Energy Trust (AETUF), Provident Energy Trust (PVX), Atlantic Power Corp. (ATPWF), and TimberWest (TWTUF).
George expanded further across the world to Asia, Europe and Israel for another group of favorites: Kookmin Bank (KB), Hyundai Heavy (HYHZF), Central Europe & Russia Fund (CEE), OM Group (OMG), Guiness Atkinson Asia Pacific Dividend Fund (GAADX), Korean Equity Fund (KEF), and First Israel Fund (ISL).
Lastly, he left investors with a couple of ‘oldie-but-goodie’ book recommendations to further expand their knowledge of the markets: How to Buy Stocks, by Engel and Hecht, and Liar’s Poker, by Michael Lewis.
Nicholas Vardy, Editor, Vardy’s Bull Market Alert, Vardy’s Stock Investors, and Vardy’s Global Guru told attendees that a really good reason for investing in global markets is simply this: There’s always a bull market somewhere. Last year, stock markets in Vietnam, Peru, and China, all posted returns of more than 100%. And with the proliferation of ADR’s and ETF’s, it is now much easier for US investors to participate.
Vardy believes there are currently 5 global mega-trends driving international markets higher (in order of less to most risk):
The first is what he calls the ‘Reagan Revolution’ in Sweden – vast economic improvement, including a big kick in the employment rate of Swedish citizens. His favorite play is Swedish ETF, iShares MSCI Sweden Index (EWD); buy with a trailing stop of 15%.
Next, Vardy chose a UK-based retailer – the fourth largest in the world, now in 16 countries and coming to the US shortly. The company is TESCO (TSCDY). Buy with a trailing 20% stop.
Thirdly, Vardy feels investors can cash in on the global cell phone boom with Latin American company America Movil (AMX), owned by the wealthiest man in the world. Buy with a 20% trailing stop.
A trend that is just about midway through its 18-year span is the global commodities boom, playing out in developing countries around the world. Vardy’s favorite pick is Anglo-American (AAUK), the world’s #1 platinum and diamond producer.
Lastly, Vardy thinks the global expansion in financial services makes two choices interesting: Hungarian National Savings Bank (OTPGF), and India’s ICICI Bank (IBN). Buy with a 25% trailing stop. He also recommended one extra, high-risk company, Millicom International (MICC), the Indiana Jones of the cell phone industry.
Ralph Oberbannscheidt, Lead Portfolio Manager, Deutsche Asset Management, sees major changes in Europe, fueling a continued expansion in their investment markets.
Europe is expected to post 2.7% GDP growth this year, but its consumption is forecast to expand only by 1.6%. The reason: Europeans – unlike Americans – are very conservative, and love to save, especially Germans. Europeans remain optimistic about inflation, and he expects the economic picture to remain bright.
In Germany, significant reductions in unemployment, dropping off to about 7%, while at the same time, labor costs have declined. Germany is the European leader in exports and joins Switzerland as a growing player in the pharmaceutical industry.
Russia intends to invest more than $80 billion in its utility industries, spurring the growth of spending on infrastructure and automation. The country is also becoming a power in retailing and banking.
Oberbannscheidt told attendees he would not emphasize energy going forward, but would look at trends such as scarcity of food, M&A, growth stocks and emerging markets for investment ideas.
Some of his favorites right now are Siemens (SI), for its hidden exposure to emerging markets, and for greater Europe, the European Equity Fund (EEA).
Robert Hsu, Editor of China Strategy and Asia’s Edge gave attendees some reasons to invest internationally:
- If nothing is going on in the US, look elsewhere
- Invest in assets that aren’t correlated with the US stock market, such as food, real estate, and hedge funds
And when you do decide to go global, he recommends that you invest, based on a macro view. Usually, he invests globally by buying assets in countries with appreciating currencies and then shorts those with depreciating currencies. Hsu also suggests that investors focus on the stock, not the company. In other words, don’t get emotionally attached to a company.
Hsu believes that every investor needs a China strategy, and he shared his 4 basic philosophies with regard to investing in China:
1. The Chinese people are the real driving force, not the government. With ethnic Chinese in more than100 countries around the globe, the only country with a lot of poor Chinese is China itself.
2. China may become the world’s biggest consumer market, but it is already the most competitive consumer market. The Chinese are not good at innovating but are excellent at copying.
3. Bet on entrepreneurs, not government bureaucrats.
Hsu also gave attendees his reasons for believing that investing in China is a better deal than going to India. Just 2 ½ years ago, GDP per capita in China was $1,300; now it is $2,000. India’s is $600, the lowest of the BRIC countries. The Chinese literacy rate is 80%+, compared to India’s 50%, which will eventually limit India’s current technological advantage in IT outsourcing, by bidding up wages for the few workers who are qualified.
China’s GDP growth is outstanding and its stock markets have seen tremendous returns. The currency is favorable as compared to the U.S. and is expected to continue to rise. 2007 GDP growth is estimated at 11.5%, compared to the US 3%, which is also slowing.
Contrary to reports of mania in the stock markets of China, Hsu believes the current uptrend still has another 3-4 years to go before the market tops out. He also believes that China is less vulnerable than the US. The money fueling our mania is borrowed, while the Chinese are using their 35% savings rate to push their markets higher. Hsu thinks the consumer boom in China is just getting started.
He sees the biggest risk as the disparity of wealth between urban and rural Chinese. However, Hsu also thinks this is improving, and as long as the Chinese believe it is and they have hope of a better future, no social problems will erupt.
It is still difficult for Americans to participate by investing directly in Chinese stocks. But ADR’s and some closed-end funds make it easier. His picks right now include: Morgan Stanley China (CAF), China Aluminum (ACH), China Life (LFC), and MindRay Medical (MR).
