Emerging Markets Still Rule the Roost

10/28/2010 9:09 am EST


Yiannis Mostrous

Editor, The Capitalist Times

Yiannis G. Mostrous, editor of the Silk Road Investor and associate editor of Personal Finance, says emerging markets should continue their nice run, and he likes a Taiwanese telecom.

Including dividends, emerging markets have trumped the MSCI World Index by 70% over the past five years. Emerging markets have outstripped the index by 145% over [the last decade]. Expect this outperformance to continue.

With Asia in the vanguard, the strongest emerging economies demonstrated remarkable resilience during and in the aftermath of the recent financial crisis and credit crunch—big tests that these growth engines passed with aplomb.

Global growth, along with economic expansion in emerging markets, will slow in 2011. But last year’s leading economies will also be next year’s bright lights. On the whole, emerging economies should expand by more than 6% in 2011—an oasis of growth amid the lackluster numbers developed nations are expected to post.

As long as the US avoids a double dip—which we expect it to do—the global economy will have a decent 2011. In such a scenario, emerging markets should return another 10% to 15%.

The group has performed extraordinarily well over the past five months, so institutional investors will take profits at some point. Individuals should regard any pullback as a buying opportunity, especially if central banks in the major developed economies continue to pursue accommodative policies.

And the long-term outlook for emerging markets is even more impressive. By 2030, the balance is forecast to shift decidedly in favor of emerging and developing nations, which will control 57% of the global economy by then.

Chunghwa Telecom (NYSE: CHT) beat analyst expectations and posted a third-quarter net profit gain of 9.8%. Taiwan’s largest telecom operator attributed the gain to rising high-speed Internet sales and a government-mandated cut of the corporate tax rate to 17% from 25%.

Subscribers to Chunghwa’s fiber optic Internet service grew to 1.9 million at the end of August, from 1.6 million in the beginning of this year. Chunghwa said it had boosted fiber optic users by adding more channels to its Internet television services. Non-voice mobile revenues also saw a bump from users of Apple’s (Nasdaq: AAPL) iPhone 4.

Chunghwa is also reportedly in talks with mainland telecom operator China Mobile (NYSE: CHL) to bring its cloud computing solutions to the Middle Kingdom. Chunghwa is said to be developing both software and hardware that would help the mainland’s mobile behemoth bring faster access to web content to its world-leading mobile subscriber base.

Chunghwa hopes to have the cloud computing solutions ready for testing by the end of the year. Successful tests could pave the way for a deal between Chunghwa and China Mobile some time next year.

The stock offers a 5.7% dividend yield and is the best Asian telecom for income-oriented investors. Efforts to expand its broadband operations in China bode well for future growth. Buy Chunghwa Telecom up to $24. (It closed Wednesday above $23—Editor.)

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