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If you’re an early riser and watch Fox News, you may have seen me on TV last Thursday morning. Markets all over the globe were falling in response to the plunge in our stock market and the network invited me to participate in a panel discussion about Asian stocks.
The other four panelists were brilliant men but unwilling to take any meaningful position — bullish or bearish.
You know me … I tell it exactly how I see it. And what I see right now is opportunity so I said “the monetary cavalry has arrived and now is the time to buy!”
Today, I want to clarify that statement. But first, let me explain what I meant by the “monetary cavalry.”
Several of the world’s Central Banks launched a determined and coordinated attack against the widening global financial crisis by lowering short-term interest rates in unison last week.
The Federal Reserve Bank, the European Central Bank, the Bank of England, Canada, Sweden, Australia, and Switzerland all cut short-term interest rates by a half percentage point.
Across the Pacific Ocean, the People’s Bank of China, Australia, South Korea, Hong Kong, Singapore, and Taiwan cut interest rates, too.
This is the first time that central banks have moved in unison since the September 11 terrorist attacks, and I think it is just the start of global government efforts to keep the global economy from further deterioration.
Then, over this past weekend, we saw additional coordination from the U.S. and European Central Banks: The Fed, the European Central Bank, the Swiss National Bank, and the Bank of England all saying they would provide unlimited U.S. dollar funds to financial firms.
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Now, let me clarify that statement about buying: When I said it was time to buy on Fox, I did not mean it was time to buy in the U.S. Here’s why …
While the Whole World Is Suffering, the
U.S. Is Clearly the Source of the Problem
And Its Stocks Are Still Overvalued …
Everyone knows where this mess started. Heck, the President of the International Monetary Fund pointed his bony finger right at us, saying,
“The U.S. remains the epicenter of the financial crisis, with its housing market continuing to decline and a wider economic slowdown contributing to a further deterioration in the quality of existing loans.”
And the problem for the U.S. stock market is that at an average of 21 times earnings, American stocks are simply too richly valued for an economy about to stumble into a recession.
This is why I believe the Dow Jones could fall by several thousand more points before U.S. stocks become reasonably valued.
In contrast, I believe the recent drop in Asian markets is going to be the best buying opportunity you will see this decade.
Three Reasons Why the Drop in Asian Stocks
Is the Sound of Opportunity Knocking …
#1. The valuations are cheap. The average P/E of Asian markets, as measured by the Dow Jones Asian Titans Index, is a bargain-basement 8.6 times earnings, the lowest since at least 1995. The Nikkei is at 10 times earnings, only 8.8 for Hong Kong, India at nine times, Korea at 8.2, and even China is only at nine times earnings! By any historical standard, those are extremely inexpensive multiples and usually the type of valuation metric that gets applied to economies that have fallen into a recession.
#2. Asia may be slowing but isn’t in a recession. The Chinese economy, which is the main economic engine for all of Asia, grew by 10.1% in the first six months of 2008. That puts it on track for a six double-digit annual growth rate in a row.
#3. The Chinese have already taken aggressive steps to stimulate their economy. As I mentioned above, after 18 straight rates hikes, the Chinese central bank reduced their key interest rate. They also lowered bank reserve requirements in September and again this week.
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| I think Asian economies will continue growing, even if the pace slows a bit. |
So the single most important question to ask is whether or not you believe that the Asian growth miracle is finished or not.
It is really that simple.
If you believe that China and its Asian neighbors can still expand their economies in spite of our credit crisis and falling estate values, then you have to believe that buying into rapidly growing economies at eight times earnings after a 60% haircut is a fantastic bargain.
Me? I absolutely believe that Asia will continue to expand, prosper, and grow. And I absolutely believe that this is the time to be a buyer instead of a seller of Asia’s best companies. Like I said, the monetary cavalry has arrived and going to save the day.
Sure, the pace of growth is going to be a little bit slower, but I am 100% confident that Asia has many years of great growth ahead of it.
You should also get paid handsomely while you wait: The MSCI Asia Pacific index is sporting a dividend yield of 3.25%. If you remove Japan, the dividend yield jumps to 4.5%. Also keep in mind that over the last five years, the dividend yield on Asian stocks has increased by an average of 18% a year.
Hey, if you’re paralyzed with indecision like the other panelists on the Fox Asian roundtable, and you were going to do nothing but hold on to what you already own, I suggest a different strategy …
Make sure your portfolio is filled with some superball stocks from healthy Asian economies instead of flat balls from the sickly U.S. economy.
That way, the next time world markets jump — like they did yesterday — you’ll get the biggest bang for your investment buck.
Best wishes,
Tony
P.S. I just told my Asia Stock Alert subscribers the two most undervalued Asian stocks to buy right now. To learn the names of these two Asian superballs, and get six more free reports, subscribe now.
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