Winter in Germany, Springtime for Asia

05/07/2009 9:17 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

May Day, celebrated overseas as International Workers Day, dawned with sobering numbers of said workers on the dole. But there were no calls to man the barricades, setting aside jammed Japanese tolls.

With its economy a customary shambles, Japan sought escape during its holiday Golden Week on congested highways leading to overcrowded resorts. There are worse ways to fight a recession, all of them patented by Germans who believe that too much fun leads to hyperinflation. Germany prefers to write off 2009 as a "fat minus" in the face of the bleakest economic outlook since the war, and the government's relative fiscal conservatism is actually playing well in the polls.

Meanwhile, the German DAX stock index is up a liberal 35% from March lows and 5% for May. And it's far from the frothiest market around. Taiwan has risen 17% in the four trading sessions since a deal with China spurred cross-Strait investment flows. Singapore stocks have rallied 20% over six days, led by banks earning fatter spreads on loans. The Greater Chinese Co-Prosperity Sphere is looking more prosperous by the day, buoyed by cheap money foreign and domestic.

Americans may be importing less, but they're saving more. Much of that rainy-day cash remains stuck in low-yielding savings accounts, but some is seeking out sunnier climes once again. Goldman Sachs economists forecast China to grow almost 11% in 2010. Which is good, because Germany expects hardly any growth next year, either.

It won't help that thousands of European auto workers are punching the clock on borrowed time, plant closures looming as General Motors (NYSE: GM) negotiates to unload its Opel subsidiary on savings-minded Fiat (Milan: FIA.MI).

Generous subsidies encouraging Germans to trade in old gas guzzlers for new cars (in the process of being copied by the US Congress) haven't done much for consumer spending overall. Europe, ahead of the Americas chronologically, is several time zones behind economically, showing few signs of a similar rebound in consumer confidence. In contrast, mainland Asia only briefly lost its nerve.

Fiat is not the only small-car champion trying to punch above its weight. India's Tata Motors (NYSE: TTM), best-known in the West for its revolutionary $2,000 Nano, is launching the world's cheapest car while simultaneously trying to revive two luxury brands, Jaguar and Land Rover, rescued from a decade of neglect and worse by Ford Motor (NYSE: F).

Tata’s shares have more than doubled in price since early March, but still sell for less than half of what they fetched a year ago. Tata has sufficient cash flow to pay a yield approaching 5% annually at the current price, and yet enjoys a huge potential for growth. As Nick Lanyi points out, that's an upwardly mobile combination.

The other weekly highlight, the Claymore AlphaShares China Small Cap Index ETF (NYSE: HAO) seemed like a better bet last week, before it tacked on another 19%. Take that as a sign that the theme of catering to Asian consumers is working, rather than an imperative to get in right here. As Carlton Delfeld writes, the HAO looks more attractive on any pullback than the better known Chinese proxies, in addition to being much cheaper.

ETF analyst Matt Hougan also singles out China as a promising play in this week's Q&A, via the SPDR S&P China ETF (NYSE: GXC).
With so much easy money already made, future gains hinge on valuations that have grown somewhat stretched during the recent surge, warns Allan Nichols.

Then again, anyone who was invested two months ago might argue that the subsequent gains were anything but easy. Maybe the easy money is what's trickling into stocks these days. For as long as the trend holds, buyers won't get hung up on the definitions.

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