A Big Winner from Asia's E-Commerce Boom

MasterCard knows a thing or two about consumer spending, so I pay close attention to what the credit-card giant has to say about spending patterns. Such information often helps me connect the dots in identifying big picture trends, which can prove to be quite lucrative.

And the latest study from MasterCard, which examined Asian e-commerce trends, looks like the mother lode! There are going to be some big, big winners out there.

Today, I’m going to give you what I consider to be the #1 stock that is poised to reap the rewards of this coming online spending explosion in Asia. But first …

Why the Asian E-Commerce Boom
Will Have a Distinctly Chinese Feel,
And Mobile Technology Will Play a Huge Role!

Here are the main points of that MasterCard study, which demonstrate that Asia’s Internet growth is nothing short of astonishing:

Asian e-commerce will grow by 23% a year for the next decade. That’s 23% a year … compounded! Those are some huge numbers. Consequently, somebody is going to get very rich.
China will replace Japan as the largest online shopping market in Asia by 2010. According to the study, “Domestic consumer spending in the two countries is poised to pick up strongly, underpinned by the rapid pace of urbanization, robust economic expansion and rising spending power.”
MasterCard expects 480 million Chinese to spend a staggering $1.4 trillion over the Internet with India a close second. “The rising population of upper-middle-income urban elites is likely to boost the online shopping markets in China and India significantly.”
The overall Asian online shopping penetration rate is about 70%, “indicating the online population has a high tendency to make online purchases.”

Of course, effective e-retailing requires online advertising and that too is booming in Asia. Japanese companies are expected to spend $6 billion in online advertising in 2009, while Chinese advertisers are going to pour $2.6 billion into online ads by 2010.

Just like the U.S. tech boom of the 1990s, Asia’s tech entrepreneurs are young, smart, wired and itching to earn their fortunes. Growth investors have the opportunity to hitch their portfolio to any number of Asian stars.

As was the case with the U.S. tech boom, the key to success is being highly selective.

The obvious investment choices would be either the big Chinese online web portals or the Chinese advertising companies:

Chinese Web Portals: Bidu.com (Nasdaq:BIDU), Sina.com (Nasdaq:SINA), Sohu.com (Nasdaq:SOHU), Netease.com (Nasdaq:NTES)

Chinese Advertising Companies: Focus Media (Nasdaq:FMCN), Hurray Holdings (Nasdaq:HRAY), Vision China Media (Nasdaq:VISN).

And I do believe that these companies will likely continue to prosper from the Chinese e-commerce explosion. However …

I Think the Big Winner Is
Going to Be China Mobile

The reason I say this is simple: Even though the price of computers has fallen dramatically in the last few years, a personal computer (PC) is still out of financial reach for the average Chinese. Meanwhile, mobile phones are both cheap and capable of many of the same functions as PCs.

Look, $500 to $1,000 dollars for a PC may seem reasonable to you and me, but that is a small fortune for the typical Chinese consumer, who makes less than $3,000 a year.

Mobile phones are much, much more than telephones to Asians. If you travel to Asia, one of the first things you’ll notice is how most locals walking down the street have mobile phones glued to their ears. Mobile phones have become almost inseparable electronic organs.

In China, mobile phones are called a shouji, which roughly translates into “hand-machine.” That’s an extremely accurate characterization of how mobile phones are used in China.

Since it was spun off from fixed-line operator China Telecom Corp. in 2000, China Mobile has grown into the world’s largest wireless service provider.

Sure, mobile phones are used to talk in China, but it would be a big mistake to think of China Mobile (NYSE: CHL) as simply a mobile phone provider. In addition to traditional calling services, the company offers value-added services such as: caller ID, call waiting, call forwarding, voice mail, conference calling, instant messaging, text messaging, as well as accessing the Internet.

Thanks to the advances in WAP (Wireless Application Protocol), an international open standard makes it possible for wireless devices to provide all of the basic services of a computer-based web browser. WAP is now the protocol used for the majority of the world’s mobile Internet sites and makes it possible to display Internet-contents on wireless devices.

So mobile phones — not PCs — are the new computers in China. Once you understand that basic but very different use of cell phones in China, you will understand the gigantic e-commerce opportunity cellular phone companies are about to cash in on.

FACT: The total number of Chinese with cell phones has increased to 592 million. But that still means that only about 45% of China’s 1.3 billion residents own a cell phone, as compared to nearly 85% in the U.S.

The number of cell phone users in China surged by 44.8 million or 8% since the start of the year. And those users are spending more and more money on those value-added services, too. Total cell phone revenue for all of China’s cellular companies in the first five months of 2008 grew by 9.6% to $48 billion.

Interestingly, the demand for traditional fixed-line telephone service is falling. The number of fixed-line accounts fell by 6.5 million to 358 million.

Guess what percentage of Chinese households own a computer? Just 13 measly percent!

The largest mobile phone carrier in China by leaps and bounds is China Mobile with more than 400 million subscribers. The company totally dominates in terms of market share. And that’s not going to change anytime soon.

Why? China mobile is 75% owned by China Mobile Communications Corporation (CMCC). And guess who owns CMCC? That’s right … the government of China! In fact, the President of CMCC, Wang Jianzhou, is also the CEO of China Mobile. Talk about a cozy relationship.

There is no way that the Chinese government is going to do anything to hurt one of its most valuable assets and crucial telecommunication providers. If anything, the Chinese government will pave the way for China Mobile to prosper.

Bottom line: If MasterCard is right about the e-commerce opportunity unfolding in China, then I think the #1 stock to profit from that online spending explosion is going to be China Mobile.

Best wishes,

Tony

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