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Two Silk Roads
04/14/2006 12:00 am EST
Having just read the new book from Yiannis Mostrous—The Silk Road Investor— I am even more enthusiastic about his recently launched newsletter by the same name. Here's a look at both, including some of the latest ideas in his service's developing portfolio.
"Asia continues to be a long-term story. It's a huge region that's urbanizing itself, leading to positive domestic demand trends, growth in construction and infrastructure, and steady increase of income. Our approach with The Silk Road Investor newsletter is top-down. I first identify long-term investment themes. A characteristic common among the stocks that we will add to our portfolio is suitability for the new realities of a changing world. We expect these stocks to be the ones that will benefit the most from the changes taking place in the global economy.
"Japan is of particular interest since I consider it to be
one of the most exiting investment stories
of this decade, based on the assessment that the economy is finally coming out
of its long slump. But I expect a correction in Japan's market before the
summer, one which will provide an opportunity to add more stocks to the
portfolio. Despite the need for patience, another Japanese stock is being added
to the portfolio, Nidec Corp. (NJ NYSE).
"Nidec mainly direct current (DC) motors, with applications in personal computers, car navigation systems, and audiovisual products. The stock is trading at attractive levels after the recent decline and has recently underperformed the market. Furthermore, Nidec is expected to make some acquisitions of smaller competitors, thereby enhancing its position in this growth industry.
"Another addition to our portfolio is United Overseas Bank (UOVEY Other OTC), is a play in the positive changes taking place in Singapore. Singapore remains one of the most defensive markets in Asia, especially in its telecom and bank sectors. United has been steadily improving operations and asset quality while expanding overseas (e.g., into Thailand and Indonesia), which is very good for growth. With a yield of 3.76% and investors are basically getting paid to wait while management continues to improve operations and expand the business.
"Because of our long-term approach, our portfolio must be able to endure short-term volatility as long as we continue to be on the correct side of the global secular trend. To achieve this, the portfolio is being constructed to offer a diversified set of holdings, while we also offer hedging ideas for more complete advice.
"For example, we believe that the US economy will experience a slowdown in the second half of this year, while 2007 could be extremely challenging. Nevertheless, a slowing economy is the bond market’s real friend. History shows that when it begins to roll over from elevated levels, it’s a good time to allocate some funds to US Treasuries. Therefore as a hedge in our portfolio, we recommend the iShares Lehman 7-10 Year Treasury Bond Fund (IEF ASE).
"Meanwhile, it's becoming increasingly obvious that the majority of investors aren't certain as to what will be the final outcome of the Fed’s moves and the probable 2007 slowdown of the US economy. The debate between deflationists and inflationists remains animated. Although I anticipate a deflationary outcome, and the only hedge able to cover both scenarios is gold.
"Given the demand for gold we've seen during the past three years (from central bank buying to new gold exchanges and liberalization of trade around the world), gold has become the world’s fourth currency. In today’s world of massive deficit spending and financial imbalances, expect demand for gold to continue to increase. I'm initiating a gold position as a permanent hedge. I suggest buying gold bullion; however, for those who prefer, streetTRACKS Gold Trust (GLD NYSE) is a suitable substitute."
Editor’s Note: For those looking for a terrific overview of the Asian markets, the just published book, The Silk Road to Riches (Prentice Hall, Pearson Education), written by Yiannis Mostrous, along with co-authors Elliott Gue and Ivan Martchev , offers a clear outline of the road ahead for long-term investors seeking to take advantage of what these authors from the KCI research team expect will be the "great secular bull market of the 21st century."
While cognizant of the interim risks of investing in Asia, the authors maintain a bullish long-term view of the region—particularly India—and provide an exceptional assessment of the strongest expected mega-trends such as agriculture, energy, and commodities. In addition, they provide in-depth coverage of specific markets such as travel and tourism, retail, banking and finance, drugs and healthcare, technology, outsourcing, telecom, and shipping, along with an overview of the stocks that are best positioned as the long-term winners in these various sectors.
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