From Rain to Rainbows

07/15/2010 2:04 pm EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Where are all the professional mourners who, a month ago, were bewailing Europe’s imminent demise? By now, the continent was to have drowned in debt, choked on austerity, and broken up into its constituent bits, after infecting the rest of the world with its angst. But Europe’s still there, plodding on like it often does when allowed. How’s it really doing? Ask Intel (NYSE: INTC). And then try to figure out what all the fuss was about.

Bastille Day found European stocks in the midst of a six-day break for higher ground. Most of the talking heads prophesying doom appear to have moved on to Shanghai, where stocks are down 25% so far this year, opening up China to charges that it was just another bubble. But even Shanghai’s shown signs of life of late. And growth across Asia remains robust. Singapore’s gross domestic product expanded at an 18% annualized pace in the first half of the year. Thailand’s doing well enough to raise interest rates, just two months after an insurrection gripped the capital.

Meanwhile, investors in Europe and the US continue to sweat the drumbeat of cautionary headlines closer to home. Many still link an investment’s prospects to the fortunes of a country where it trades, despite the growing irrelevance of such details to the multinationals.

More than ever before, publicly listed companies represent the economy’s choicest bits, blessed with the lowest costs of capital and credit and the means to chase growth anywhere in the world, while shifting costs to the most efficient locales. The entire Western hemisphere accounts for just 20% of Intel’s revenue and contributed 17% of the company’s growth over the last year. Asia supplies 57% of the chip maker’s revenue and chipped in 64% of its sales gain during the last 12 months.

Multinationals (many mid-caps and small-caps among them) are swimming with the tide leveling global wealth, as they shift more and more of their investment to lower-cost countries. With incomes stagnant and jobs hard to get, much of the rich world is feeling none too swell. But it’s merely getting a smaller share of a planetary pie that’s nicely expanding once again. And the income it’s lost has accrued as extra profits on the corporate bottom line.

It’s a trend Forbes correspondent Robyn Meredith documents so well in her bestseller on the development of China and India, “The Elephant and the Dragon.” In this week’s Q&A, she says China has the wherewithal to cope with a property bust by injecting more cash into Chinese banks, as the government has done in the past.

John Snowden is recommending a UK telecom firm that, like Intel, will increasingly depend on growth in emerging markets. The more adventurous sorts can check out Ryan Irvine’s take on a small Canadian firm specializing in magnetic powders. Adventurous sorts have become an endangered breed of late. The timid are many. That’s a good sign for the bulls.

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