If your eyes are glued to the Dow or the Nasdaq, you may be missing out on some of the most profitable markets in the world.
I’m talking about Asia.
Taiwan, which I just visited a couple of weeks ago, trumped all major world markets last week, surging by almost 4%. Japan was close behind, with the Nikkei smashing through 17,000 last week.
And as faithful readers know, I’ve pounded on the table about two Japanese stocks in particular — Sony and Trend Micro.
Well, guess what! Last week, in just one trading day, Sony jumped from $44.56 to $46.05, a 6.3% single-day gain.
Trend Micro did even better, soaring 7.7% in a single day.
My view: Expect more of the same!
Who’s This Man? And Why
Is He So Do Darn Happy?
His name is He Renchu, and he’s the chairman of Hunan Nonferrous Metals, China’s largest producer of tungsten, zinc, lead and antimony.
Tungsten is used in cutting tools and electrical systems; zinc is used to make corrosion resistant steel products; and antimony is for fire-resistant materials.
Each of these nonferrous metals are in huge demand, and China happens to have the world’s largest reserves of several of them.
The reason this man is so happy is that his company raised $1.78 billion (Hong Kong dollars) last Friday when Hunan Nonferrous Metals (symbol 2626.HK) floated its IPO.
He then sat back and watched his stock soar by 73% on the first day of trading. Yup, a 73% gain in a single day!
The demand for a piece of the IPO was so strong that it was 700 times oversubscribed.
And Hunan Nonferrous Metals isn’t an isolated situation either. Already, just this year:
- Golden Eagle Retail Group (3308.HK), a Chinese department store, rose 13%.
- China National Building Material (3323.HK) rose 21% on its first day of trading.
- Nine Dragons Paper (2689.HK), China’s largest containerboard maker, surged by 40%.
- Lingbao Gold, (3330.HK), a Chinese gold mining company, jumped 33%.
Now, here’s a heads up on another IPO that I think will also skyrocket:
China Communication Construction Group is the government infrastructure construction company that pulled in over $10 billion of revenues in 2005 and is planning a $1 billion IPO later this year.
I wouldn’t be surprised if China Communication Construction Group ends up being one of the most successful IPOs of 2006. No matter what, the IPO market in Asia is red hot, and it looks like it’s going to stay that way.
Which Would You Prefer:
2% Growth in the U.S. or
20%-Plus Asian Growth?
The Chinese Central Bank just released its 2006 economic forecast last week. Their expected growth rate for the Chinese economy this year: 8.9%.
Ha! I don’t place much credence in that government report because China has consistently underestimated its economic growth for several years now. By the end of the year, don’t be surprised to see the Chinese economy growing by closer to 10%.
Heck, in a separate report last week, I learned that China’s industrial output has skyrocketed by 20.1% and that the value of goods delivered for export has risen 29% in the twelve months through February.
And if you think all that growth came from exporting cheap shorts, t-shirts, trinkets, or toys, think again. The fact is that, just in the first two months of 2006, the value of high-tech products exported from China skyrocketed to U.S. $35.77 billion. Among these …
- China’s exports of laptop computers rose 29% to $4.63 billion,
- Exports of cell phone jumped 69% to $3.98 billion, and
- Cell phone parts jumped a whopping 81% to $1.96 billion.
If you’re running Motorola or Nokia, should you be worried?
If you’re running Dell or Hewlett Packard, should you be worried?
Darn right you should!
More importantly, this is the first time China’s high-tech exports have made up more than 30% of its total exports: Nearly 37% of Chinese exports are now tech products, and China has clearly made the shift from manufacturing low-margin commodities to higher-margin tech products.
Bottom line: It won’t be long before U.S. tech companies join the already-long list of American companies that have gotten clobbered by competition from Asia.
China isn’t the only Asian economic tiger that’s growing like a weed.
Singapore is a city-state like no other. Its skyscrapers are towers of fortune. Its streets, the cleanest and most secure of all Asian cities.
And its manufacturing output is growing like a rocket — up a staggering 37.2% in February, according to the just-released report from the Singapore Economic Development Board.
Monkey See, Monkey Do:
Grabbing a Piece of the
Chinese Gold Rush
That type of growth is attracting lots of attention all around the world, and foreign companies are rushing in to grab a piece of this modern gold rush.
In fact, just in the last few days, the following companies announced major China initiatives.
Best Buy: China is currently the seventh largest retail market in the world and is expected to climb ahead of France and Germany to number five by 2010.
No wonder Best Buy, the largest consumer electronics retailer in the United States, is spending $200 billion to buy a 66% stake in Five Star Appliance, China’s fourth largest retailer with 130 stores!
Time Warner: Warner Brothers, a division of Time Warner, opened its first China store in Shanghai last week, but plans on opening guess how many more: 200!
And Warner is a little late to the party. Walt Disney, for example, is already selling its merchandise in China through some 2,600 retail spaces in larger stores, and aims to increase the number to about 6,000 by 2009.
Armani Group: The Armani Group has over 300 stores in about 40 countries but is making a big, big bet on China. China has become Armani’s second largest Asian market. So it’s expanding its earlier plans (to open 30 stores by 2008) to 40 or 50 stores instead.
Pepsi: Up until last week, every single Pepsi research center was in the U.S. Not for long! Pepsi announced that it would open its first ever non-U.S. research center in Shanghai. Why? To develop food and beverages that will accommodate the tastes of Chinese consumers.
In their words: “Every market demands its own flavor of food and beverages. We will put more such products on the Chinese market this year.â€
Citigroup: Citigroup opened its first-ever office in Shanghai last week to cater to a growing group of wealthy Chinese. According to a recent study, the total value of financial assets of individuals in China with at least $100,000 is expected to increase 14% annually to $1.73 trillion by 2009.
“What you are seeing in China is some of the biggest wealth creation in the world,†says Citigroup. “Most of our clients will be those entrepreneurs who have started businesses.â€
And remember: These are just the announcements from last week. Just five days!
Ask yourself: Why do you think these giant corporations are throwing billions of dollars at Asia? For the simple reason that they expect those multi-billion-dollar investments to pay off in spades.
How About You?
What have you done to grab your piece of the Asian gold mine? Nothing?
If so, I think that’s a big, big mistake. And that’s not just because the opportunity in Asia is so much greater.
It’s also because I think the risk is so much lower.
Less risk? Absolutely!
Last week, the Federal Reserve Bank hiked short-term interest rates for the fifteenth time. That’s twelve rate hikes beyond the old “three steps and a stumble†rule. So you have to wonder how much longer the U.S. stock market can continue to fight the Fed. Meanwhile …
- Long-term interest rates, which have barely budged since the Fed started raising rates, are finally on the move too. In fact, the yield on 10-year Treasury bonds is now a hair from 5%.
- Metals prices are soaring. Gold skyrocketed to a 25-year high to $594 an ounce and copper hit a new all-time high. Iron ore, aluminum, steel, zinc, tungsten and other metals are going berserk.
- The price for a barrel of oil has sprinted past $67 a barrel, within slingshot distance of post-Hurricane Katrina prices. And we’re just now approaching the peak driving season!
My point:
How long can the market continue to ignore these surging inflationary signs? How much longer will it take for these inflationary pressures to send our economy into a tailspin?
I believe the answer is not very long. Moreover, most U.S. stocks — especially many of Wall Street’s favorite tech stocks — are horribly overvalued. That makes them very, very susceptible to a painful correction.
The biggest mistake I think an investor can make today is to have his stock portfolio 100% in U.S. stocks and 0% in Asian stocks. In my book, that’s what I’d call “asset allocation from hell.â€
Shifting some of that money to Asian stocks will not only get you into the most rapidly growing part of the world, but it will get you out of some of the most dangerous equities on the planet. That alone helps reduce your risk.
Best wishes,
Tony Sagami
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About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. 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. Contributors include Jennifer Moran, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2006 by Weiss Research, Inc. All rights reserved.
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