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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Asia-Pacific Economies Grow As Developed Economies Wither

Economics / Asian Economies Jul 02, 2009 - 01:38 AM GMT

By: Uncommon_Wisdom

Economics

Best Financial Markets Analysis ArticleTony Sagami writes: The World Bank is a global financial institution that makes loans to developing countries for the stated purpose of reducing poverty.

It provides low-interest loans and interest-free grants for investments in education, health, public administration, infrastructure, financial and private-sector development, agriculture, and environmental and natural-resource management.


Based in Washington, D.C., the World Bank has more than 10,000 employees from more than 160 countries.

Included among those 10,000 employees is a small army of economists that spends its days examining every part of the global financial system. That means the World Bank has a comprehensive view of the global economy.

Warning: The World Bank Doesn’t Like What It Sees.

In March, the World Bank forecast that the global economy would contract by 1.7 percent in 2009, a painful but mild recession. Last week, however, the World Bank revised its forecast even lower, stating it expects the global economy to contract by 2.9 percent.

The entire world has not been suffering at the same pace.

==> Gross Domestic Product in the United States will fall by 3 percent … lower from the previous forecast of a 2.4 percent decline.

==> Japan’s GDP will drop by 6.8 percent … down from 5.3 percent.

==> Europe’s GDP will shrink by 4.5 percent … not the 2.7 percent forecast three months ago.

Bottom line: The world economy as a whole is dropping like a lead balloon.

No matter how much powered sugar you sprinkle on those numbers, they’re still sour, and I’m confident that betting on Japan’s, Europe’s, or the U.S. stock market is going to be a losing bet for several years.

Heck, even the Federal Reserve Bank’s FOMC admitted the same thing last week when it said “economic activity is likely to remain weak for a time.”

Despite what the effervescent Wall Street bulls on TV tell you … our economy stinks, and it is going to get worse.

As always, it pays to read the fine print. While the World Bank is worried about the developed parts of the globe, it has an extremely optimistic outlook for China.

While it was chopping its 2009 forecast for Japan, Europe, and the United States, the World Bank sharply raised its economic growth forecast for China from 6.5 percent to 7.2 percent.

The rest of China’s neighbors (and trading partners) are enjoying the same type of robust growth. Southeast Asia and the Pacific regions are expected to grow by 4.6 percent and 5 percent, according to the World Bank.

Think about those numbers. If you’re an investor — and I know you are — do you want to bet your life savings on deteriorating economies, or do you think it makes sense to include a heavy dose of Asian spice in your portfolio?

The answer is crystal clear to me: You should use rallies in the U.S. stock market to lighten up on U.S. stocks and move those stocks into fast-growing Asian companies.

By the way, the same is true of U.S. bonds. I say that because foreign investors are getting sick of U.S. treasury bonds and are starting to dump them in a big way.

The Treasury Department reported that purchases of stocks, notes and bonds by foreigners fell to $11.2 billion in April from $55.4 billion in March. That’s a HUGE drop.

Not only are foreign investors chopping new purchases, they are also dumping their existing holdings of U.S. bonds, too. China, for example, reduced its holdings of U.S. bonds from $767 billion in March to $763.5 billion in April.

Japan, the second-largest holder of Treasuries, chopped its holdings from $686 billion to $685 billion in March.

This is a tough time to be an investor with a narrow world view. Any investor who insists on maintaining a parochial view and keeps all of his or her assets in U.S. stocks and U.S. bonds will be disappointed — and poorer.

Adding Asia To Your Portfolio Is Easy

Exchange Traded Funds: You could add an ETF like the PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio (PAF), which tracks the performance of the largest companies in the Asia-Pacific region, excluding Japan.

Mutual Funds: You could add a no-load fund like U.S. Global China Region Opportunity (USCOX) that focuses on rapidly growing Chinese companies with a particular emphasis on natural resource and infrastructure stocks.

Individual Stocks: There are more than 100 Chinese stocks traded on U.S. exchanges. For example, China Mobile, the largest mobile phone company in the world, is traded on the New York Stock Exchange under the ticker CHL. You don’t even need to open an overseas brokerage account to invest in Asia.

The last two Chinese stocks traded on the New York Stock Exchange that I recommended to my Asia Stock Alert investors, Yanzhou Coal (YZC) and Nepstar Drugstores (NPD), are both up by almost 20 percent in the few weeks since I recommended them.

Those are the types of opportunities you’ll find in Asia, and I hope you’ll join me.

Regards,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

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