Buy When No One Wants to

11/18/2008 1:54 pm EST


Yiannis Mostrous

Editor, The Capitalist Times

Yiannis Mostrous, editor of the Silk Road Investor, says the key ingredients are in place for Asian growth.

Markets can go rapidly higher or lower from current levels, and economies will slow big time next year. But if you want to be on top of the game after things settle down, you better start buying when few want to. My view remains that the Asian structural economic growth story is intact, and now is the time to start adding to positions.

China Life Insurance Company (Hong Kong: 2628, NYSE: LFC) is China’s largest life insurer in terms of premiums and geographic business reach. It has a policy base of more than 250 million people.

The company offers quality in turbulent times, and the stock has also been hit hard. The long-term growth potential is substantial; insurance penetration in China is very low at around 1.8%. Also, the company has good exposure to rural areas that are rapidly becoming the next frontier for Chinese growth. The government has made rural growth one of the pillars of its economic strategy.

Premium income was up 81% in the last quarter, while costs have declined by 15%. According to industry sources, insurance policy sales and growth in China is relatively resilient, which, coupled with the company’s pricing power, will allow China Life to navigate rough waters.

PT Telekomunikasi Indonesia (NYSE: TLK) has been severely hit and now offers a 9% dividend yield with strong cash flows.

The company, which is 50-percent owned by the government, is the dominant fully integrated telecoms operator in Indonesia, providing local fixed-line, mobile, and data services. Telekom also holds 65% of the largest local mobile company, Telkomsel.

The company’s strong cash flow generation offers a good buffer in the current environment, supporting a strong balance sheet, and will also help it defend and increase its market share.

Keep in mind that Indonesia has been a particularly volatile market during this selloff, and it’s a safe assumption that there’s more upheaval ahead. The economy has long boasted solid fundamentals (good growth, low export exposure, falling debt) but has always been volatile. Indonesia has experienced strong credit growth (36% year-over-year) over the past two years, so a period of adjustment should be expected.

That said, Indonesia has been successful in lowering its public debt from 100% of GDP to 36%; its fiscal deficit is a manageable 1.3% of GDP. Inflation has been on the high side at around 12% but should moderate going forward. Food and energy prices, which combined account for 40% of the CPI basket, are subsiding.

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