China Still Beckons

03/31/2009 11:15 am EST

Focus: GLOBAL

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

Paul Goodwin, editor of Cabot China & Emerging Markets Report, thinks holding Chinese stocks is crucial for global investors, and he recommends one high flyer.

Recent estimates of how fast the Chinese economy will grow have varied from a low of 6.8% to a high of around 8%.

If a developed country were growing that fast, people wouldn't be able to throw money at it quick enough!  The country's stocks would be climbing the charts like ants going up a wedding cake. But this is China, the double-digit growth machine, and people don't know what to make of this new, relatively sedate growth.

And despite this slowdown in its biggest market, which means a wave of canceled orders and factory closures, China's economy is only slowing down to the upper single digits.

China's foreign currency reserves are still [around two] trillion dollars. If it needs to stimulate its economy, it can pay for it without even taking on any debt. Infrastructure projects, direct subsidies, tax breaks-the government has all the tools it needs to move the economy from an export footing to a domestic consumption footing. 

And it can do it fast.

We're no fans of the centralized power of authoritarian regimes. But when there are steps that need to be taken quickly, the rulers of China can make things happen.

So, what does this mean for you?

It means that you need to have some China in your portfolio. Owning at least a small amount of Chinese stocks will make the difference between a portfolio that's flat or down for the year and one that actually gives you some gains.

AsiaInfo (Nasdaq: ASIA) sells software and IT security products to the Chinese telecom industry, and there is an interesting combination of winds filling the stock's sails.

AsiaInfo has always had a big line of business with China Mobile (NYSE: CHL), the largest cellular company in the world by subscribers. AsiaInfo helps China Mobile bill customers, analyze usage patterns, and fight viruses and malware. The company has also cut deals with China Unicom (NYSE: CHU) for the same services plus a new business support system and a business intelligence system. With China preparing (as it has been for years) to roll out its 3G phone system, the opportunity for AsiaInfo looks great.

The chart for ASIA shows a highly volatile stock-definitely not for the faint of heart-that has been in a long-term up trend since late 2006. The most hopeful sign is that the stock has broken through its 2008 resistance level at $14 (it traded at around $17 Monday—Editor) and is flying in clear skies. And yes, the days with the biggest volume have been up days. This is a hot stock in a hot market. It's worth checking out.

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