Investing In Asia - Buy the Technology, Not the TrendStock-Markets / Emerging Markets Nov 23, 2007 - 12:21 AM GMT
Yiannis G. Mostrous and GS Early write: There are two big concepts on growth investors' minds today: Asia and green tech. And for good reason; they both reinforce one another.
India and China is each turning out 600,000 engineers and scientists a year. In comparison, the US is graduating about 50,000.
The UK scientific community is also disturbed by the growing lack of interest current college students have for the sciences. And if you're trying to rationalize China 's and India 's numbers by noting their populations are much larger, well, they're not an order of magnitude larger. It doesn't wash.
What that means is in the next five years or so, much of the technical talent that has comfortably existed in the US and Europe will be moving to Asia : software, hardware, biotech, electronics, chip design and manufacturing, you name it.
What's more, large Asian nations are also using this technological boomlet and applying it to the challenges of supplying energy to billions of people as oil becomes scarcer, the planet warms and importing fuel to sustain a major country's productivity becomes economic suicide. These countries are going green not to save the planet but to build sustainable economies that won't swoon when oil or coal prices soar.
In the US and Europe , two of the world's largest consumers of energy, it's a green tech trend. In Asia , it's an economic model for capturing the brass ring of economic leadership in the 21st Century. But the semantics or even the intent isn't really the point.
The point is green tech is a global long-term trend, and one of the most important enabling technologies for green tech to succeed is nanotechnology. Although nanotech tends to be a pretty fuzzy concept for anyone not outfitted in a lab coat, it fundamentally boils down to allowing scientists and engineers to manipulate and construct properties at the molecular level with reliability and consistency.
Here's a tangible analogy: Think of an ear of corn. Imagine spreading butter on the ear versus buttering each separate kernel on the ear. The surface area you have to cover increases exponentially.
Up to now, most of our technology has been about dealing with properties as an ear of corn. Nanotech allows us to manipulate each kernel.
Increasing the surface area in such a way and manipulating individual “kernels” changes the interactions, efficiencies and performance of everything that is altered: nanotubes, nanoexplosives, nanolithography, nanomaterials, etc. Or, in more practical terms, new drug delivery systems and diagnostics; new ways to make computers smaller, faster and more energy efficient; better batteries; stronger fabrics; and more efficient fuels and materials.
Although this work is going on across the globe, Asia—Singapore, China, India and Japan, in particular—and Australia are quickly emerging as leaders in the new generation of work that will rupture the current status quo of the energy, electronics, pharmaceuticals and textiles industries for the next century. And it's happening now.
My colleague Yiannis Mostrous asked me to pen this issue of Growth Engines to give you the lowdown on how forward-thinking companies, from huge multinationals to development stage companies, are rewriting commerce for the coming decades. The following are a handful of companies I hold in my portfolios in my subscription service, The Real Nanotech Investor ( www.realnanotechinvestor.com ), that are incorporating nanotech into their existing product lines to enhance their market positions or are developing breakthrough products that may well be the ground floor opportunities about which all growth investors dream.
Three of the biggest players in Asia are actually German companies— Siemens , BASF and Bayer . German diplomacy has been instrumental in helping German companies develop very close business ties to markets in China and Singapore , in particular.
Singapore has been actively beefing up its research and development (R&D) efforts with the goal to be the brains behind the economic brawn in Asia . And this German trio has sunk significant resources in setting R&D facilities in Singapore . It also helps that the tax laws in Singapore are much more favorable than they are in Germany , so it makes good business sense for them to do so.
The companies get access to these markets and have an eager, educated group of scientists with state-of-the-art facilities (usually subsidized by the government). Singapore gets access to some of the top scientists and engineers in the world. That puts Singapore—or China or India or Australia—on the world stage years before that could organically “grow” a generation of world-class technicians.
Remember, scientists are interested in science, not geography. If they can work at the highest levels on important projects, they go; borders are immaterial.
In Australia , it's been more of an organic process of developing talent, but it also has two great advantages: It's an English-speaking nation with significant ties to the US and UK , and its neighbors are some of the fastest-growing economies in the world. And its scientists are relatively inexpensive, so start-ups are popping up like mushrooms after a spring rain.
Two development stage Aussie companies worth looking into are pSivida and Starpharma . Both are in the drug delivery business.
The former has significant backing from drug giant Pfizer and UK-based QinetiQ . It also has a proprietary drug delivery system in Phase III trials for pancreatic cancer. The company is now controlled by the inventor of its leading product line, so there's little risk that management is will to throw the company on the tracks to make a few bucks pitching a nanotech fantasy.
The latter has developed VivaGel , a salve that can be applied to women's genitals to prevent the transmission of Herpes and HIV. Its dendrimer-based technology also is being developed as safer and more effective spermicidal for use on condoms; it recently inked a development deal with Durex , the world's leading condom maker and is in negotiations with another major condom maker.
It also has deals with the leading cardio-pulmonary clinic in Australia and a Merck & Co subsidiary doing siRNA research for cancer-fighting applications. And its potential was echoed by its peers just last week when it was awarded for nanotech excellence in the product category for VivaGel at the National Nano Engineering Conference in Boston .
Suffice it to say, there are some big things happening Down Under.
Last, I would be remiss not to mention the forefathers of miniaturization, the Japanese. As Asia develops into a regional power and the enmity of the 1930s and '40s fades, inter-Asian trade deals are growing rapidly and Japan is a key beneficiary. In this space, Toshiba , Hitachi and NEC are the ones to watch.
If you're a “Buy American” kind of investor, check out ultracapacitor maker Maxwell Technologies , which has growing its business smartly in China and has significant business in Europe in the green power sector.
Also, Motorola is a mobile phone fixture in Asia and continues to have a wide and short pipeline from lab to market, which is crucial in this sector.
GS Early is editor of The Real Nanotech Investor and the free e-zine Nanotech Investor News , and executive editor of www.kciinvesting.com .
By Yiannis G. Mostrous
Editor: Silk Road Investor, Growth Engines
Yiannis G. Mostrous is an associate editor of Personal Finance . He's editor of The Silk Road Investor , a financial advisory devoted to explaining the most profitable facets of emerging global economies, and Growth Engines , a free e-zine that provides regular updates on global markets. He's also an author of The Silk Road To Riches: How You Can Profit By Investing In Asia's Newfound Prosperity .
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