In October, I’ll be visiting eight of the most important cities in the world — every single one in Asia.
I’d love to take the tram to the top of Mount Faber in Singapore, marvel at the New Shanghai Circus acrobats, or watch a thoroughbred race at the Happy Valley racetrack in Hong Kong.
But I’ll have scant time for sightseeing or fun. Instead, I’ll spend my days (and nights!) meeting the officers, managers, salespeople, and founders of the world’s most rapidly growing companies.
Equally as important, I will have the opportunity to talk to the regular people who work and shop in these key cities. I always find those conversations to be just as — if not more — illuminating than meeting with the corporate suits.
While I’m gone, I’ll miss several of my 14-year-old son’s football games and a handful of my 12-year old daughter’s volleyball games. But I think these trips are important because there simply isn’t any substitute for boots-on-the-ground research.
Today, I’d like to tell you more about one of the cities I’ll be visiting, and an extremely exciting company that’s based there …
The Biggest City
You’ve Never Heard Of
I’m talking about Shenzhen, China. Reasons:
- The city has more residents than Los Angeles, Philadelphia, Houston, and Chicago … combined!
- More factories than all of the U.S. “red†states.
- Skyscrapers that are taller than the Empire State Building.
- And the busiest port in all of China.
Despite all this, Shenzhen is barely on investors’ radar screens.
Shenzhen is the cradle of China’s industrial revolution, and one of the very most important economic centers in the entire region.
The person behind its rapid growth was Deng Xiaoping, the man primarily responsible for moving China from an antiquated command economy to a socialist market economy.
And a cornerstone of Xiaoping’s economic reform was the creation of Special Economic Zones (SEZs). These are the regions that were the first to receive privileged economic treatment, such as tax concessions, to attract foreign investment.
In 1979, Deng designated Shenzhen as China’s first SEZ. The city was chosen because of its proximity to Hong Kong — both places share the same dialect and culture.
Plus, Shenzhen was far enough away from Beijing to be ignored by governmental leaders if the whole SEZ experiment failed (or if it was so successful that Western decadence became a problem).
While the whole Western-decadence thing is arguable, there’s no question that the SEZ designation worked like a charm. Foreign companies, led by factory owners in Hong Kong, rushed into Shenzhen, turning it into foreign investment heaven:
- Since 1979, more than $30 billion in non-Chinese capital has flowed into Shenzhen, pushing the economy, expanding the Shenzhen economy up by an average of 28% a year.
- In 2005, Shenzhen exported more than $100 billion of goods — 13% of China’s total exports.
- Today, more than 400 of the 500 largest companies in the world have offices or factories in Shenzhen.
- And the Shenzhen Stock Exchange lists 540 companies valued at more than $120 billion.
- In 2005, Shenzhen exported more than $100 billion of goods — 13% of China’s total exports.
A solid measure of a region’s economic activity is the volume of goods and services that pass through its primary port. And sure enough, Shenzhen now has one of the busiest ports in the world. That’s thanks to its 260-kilometer coastline, deep-water harbor with superb natural shelter and close proximity to Hong Kong.
As soon as I get there, I’m going to start investigating a short list of prime companies. And when I get back, I’ll tell you all about what I discovered.
For now, I’d like to share a little information on just one of the very promising companies operating in Shenzhen …
A Pearl of Wisdom Leads
To An Investment Jewel
When people think of jewelry, they probably picture Swiss watchmakers … South African diamond miners … or German jewel cutters.
Well, I have a little-known factoid for you: Most of the world’s jewelry is actually made in China.
Add in what I just told you about Shenzhen, and you can see why I’m excited about a niche jewelry company based there.
The company is one of the largest wholesale suppliers of pearls in the world. It primarily sells to jewelry manufacturers, wholesale jewelry distributors, and mass jewelry merchandisers in the U.S., Europe, and Asia. However, it also has a growing business selling finished products, such as rings, necklaces, broaches, earrings, and pendants.
Keep in mind, I’m not talking about a fly-by-night, newbie business. This company has been operating for decades … and it’s been extremely profitable over the years!
Here’s where things get really interesting: The company owns a 550,000-square-foot commercial real estate complex in the booming Gong Ming Zhen district of Shenzhen. It occupies roughly 20% and leases out the rest.
These real estate assets are a real sleeper! Demand for rental space is so strong, in fact, that a 300,000-square-foot expansion is under way. Once completed, the income should boost the company’s profits even higher.
This company is one of the juiciest bargains I’ve ever seen. It is selling for only 11 times its past earnings, has absolutely zero debt, and is sitting on $5 a share of cold, hard cash.
Best of all, it is selling for less than its cash on hand! In other words, you’re getting an established, profitable jewelry business and some prime downtown commercial Shenzhen real estate for FREE!
How in the World Can
Such a Bargain Exist?
Because Wall Street doesn’t bother to do its homework — there isn’t one stinking analyst following the company.
Maybe it’s too small for them to care about, or maybe they just don’t realize there are hidden Shenzhen real estate assets buried in the books. Heck, I bet 99% of the suits on Wall Street have never visited Shenzhen, and many have probably never even heard of it.
However, although it sounds really great, I’m not ready to jump in with both feet yet. I want to kick the tires and peek under the hood before I tell anyone to invest their money.
And even if it ends up being a dud, I won’t be upset. You see, as exciting as this business sounds, it isn’t the only one. Bargains like this aren’t uncommon in Asia. In my experience, the further away from Wall Street I go, the better the opportunities get.
While I loathe to leave my family, there’s absolutely no substitute for a boots-on-the-ground approach. It’s the best way to uncover these types of raging bargains. Every trip I’ve ever made has unearthed a mother lode of opportunities, and I expect this one to be the most productive yet.
I’m leaving in three weeks, and I hope you’ll join me as I uncover the very best opportunities in Asia.
In the meantime, if you don’t yet have a stake in Asia, consider adding an international fund with a strong focus on the region.
Two of my favorite diversified Asian funds are Fidelity Pacific Basin (FPBFX) and Excelsior Asia Pacific (USPAX).
If you’re looking for funds with a bigger emphasis on China, I like U.S. Global China Opportunity (USCOX) and T. Rowe Price New Asia (PRASX).
Best wishes,
Tony
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Monica Lewman-Garcia, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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