My favorite ways to invest in Asian and Chinese growth story
Stock-Markets / Investing Jan 16, 2007 - 04:32 PM
There's no question that I consider some American companies to be great investments right now. Some have strong business models, defensible niches, and great products. But one thing they don't have going for them is a sound economic backdrop. Unfortunately, the U.S. just isn't roaring ahead right now.
Meanwhile, Asian economies show no sign of slowing down. And that's why I advocate paying attention both to the companies that are based there and the American companies that are doing business there ... the right way. More on that in a moment.
First, I want to tell you about ...
Three Asian Industries That Look Absolutely Unstoppable!As an investor, you get to put your money to work in practically any kind of business imaginable. So, here's an important question: What kind of businesses in Asia look poised to grow? My answers ...
Construction: You need look no further than China to understand why this industry has such great prospects. The country is throwing up giant skyscrapers ... paving new roads ... and building new power plants. Maybe you think it's too late to get in? Well, if anything, I think activity will pick up — not slow down — as the 2008 Olympics approach. We still have another year or two left in this cycle, and that's plenty of time for some of these stocks to double.
Cargo and Containers: One trip to Wal-Mart will prove that China has become the world's manufacturing center. Today, just about everything on store shelves was made in China (or some other Asian country). But it's hard to consistently figure out who will make the next hot product. That's why I like companies involved in transporting goods from factory floors to store shelves.
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Investors have tons of choices here. They can buy shares of companies that run China's toll roads. They can put their money into railroad companies. And they can also consider port operators, since almost every item eventually boards a ship.
Of course, I do like some manufacturers and retailers. Particularly the ones that cater to ...
Chuppies: Asia is all about consumption. Every time I visit, I'm bowled over by the sheer volume of shopping going on. I'm not talking about people buying crappy t-shirts, either. Instead, Chinese yuppies (I call them “Chuppies”) are greedily snapping up cell phones ... staying at lavish hotels ... gambling at casinos ... and sporting expensive jewelry.
At this point, you might be thinking that U.S. companies should be making a killing off of this new market. Well, some are. But others are coming up short. Here's why ...
Some American Companies Just Don't Get Asian Markets Take restaurants — like their U.S. counterparts, Asians love dining out. However, many U.S. restaurants have found it difficult to operate in places like China. One major problem is adapting a menu to the very localized Asian taste buds. Heck, you won't find pigeon, duck tongue, or dog on a Burger King menu in the U.S., will you?
It's also hard to adapt to a completely different culture in other ways. Advertisements that would be harmless in America can tick off the entire population of another country. For example, Nike ran a TV spot that showed NBA superstar LeBron James playing and defeating a computer-generated Kung-Fu master. People were so insulted that the Chinese government banned the ad. And I haven't even gotten to the business environment, which can be downright cut-throat! Look at what happened to Best Buy when it tried to open its first Chinese store:
The company was going to take over a prime Beijing commercial space that was vacated by Ikea ... until Gome, a Chinese retailer, heard about it. To add insult to injury, Gome leased the place for $2.5 million a year even though Best Buy had been offering four times as much. Preferential treatment for a local firm? You be the judge.
My point is that succeeding in Asia is a lot more complicated than opening an office or hanging up a shingle. As an investor, you can't assume that every company with a strategy for China will succeed. And you've got to be especially careful when you're getting your stake in Asia through your U.S. holdings.
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Don't worry, though ...
There Are Five Easy Ways to Invest in Asia
I want to make something clear — I'm not suggesting that you abandon all of your U.S. holdings, even the ones with absolutely zero exposure to Asia. However, I do think it's foolish to have your portfolio entirely invested in any one country, especially if it's the slow-growing U.S. There's no excuse for that nowadays. Not when you have so many ways to invest abroad. Here are just five of the ways to invest in Asia:
First, you can buy a mutual fund that's focused on either one or more Asian countries. Three I like are U.S. Global's China Region Opportunity (USCOX), Fidelity's China Region (FHKCX), and T. Rowe Price's New Asia (PRASX).
Second, consider exchange-traded funds. These investments give you a diversified stake in specific regions, they're easily bought and sold, and they generally carry lower fees than mutual funds.
Third, you can buy shares of Asian companies that trade on American exchanges. Many come in the form of American Depositary Receipts (ADRs), which are U.S.-listed stocks that trade exactly like their foreign-listed counterparts.
Fourth, if your broker has a foreign trading desk, you can buy shares of Asian companies that are listed on foreign exchanges. This isn't nearly as hard as many people think. A lot of the most attractive Chinese companies are listed on the Hong Kong Stock Exchange, but some can also be found on exchanges in Singapore, London, Shenzhen, and Shanghai.
Fifth, there are some American companies that are getting it right overseas. You've got to choose carefully, but U.S. firms with strong presences in Asia are one last familiar way for you to get a stake in economies that are absolutely trouncing the paltry growth happening on American soil.
Best wishes,
Tony Sagami
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