Quick! Tell me where the Nikkei closed at yesterday.
How about the Kong Hang Seng Index? The South Korean Kopsi? Or the Taiwan TSEC Index?
Don’t feel bad if you don’t have the answer on your fingertips. You’re hardly alone, and I suspect very, very few U.S. investors do.
The Nikkei, by the way, closed at 17,563 last week, the first time it has been above 17,500 since July 10, 2000.
And that’s just Japan. Last week, the Morgan Stanley Asia-Pacific Index soared to its highest level since January 1990, over sixteen years and three months ago … wiping out any declines in the 1990s … erasing all the troubles of the early 2000s … and crossing into brand new territory.
So failing to pay attention to what’s happening across the Pacific can be a very costly mistake.
Look at these eye-popping year-to-date results for Asian funds through April 5:
The Oberweiss China Opportunity Fund (OBCHX) is up 42.2%.
The Dreyfus Premier Greater China fund (DPCAX) is up 38.4%. And a slew of others have gains in excess of 20%. All just this year!
U.S. investors have been trickling in. But right now, it’s primarily Asian investors who are buying, and they know a good thing when they see it. Indeed …
The Hong Kong Investment Funds Association — a trade group of Hong Kong mutual fund companies — reported that fund sales in January and February totaled US $4.99 billion. That’s a 70% surge over the same period last year and a staggering 129% increase from November and December.
The reason Asia funds are soaring is simple: China is growing like a weed on Miracle-Gro and pulling the rest of Asia along for the ride.
Asian Growth:
7.4% in 2005
7.2% in 2006
7.0% in 2007
Last week, the Asian Development Bank released its 332-page-long 2006 Outlook report. The ADB expects Asia to grow by 7.2% in 2006 and 7.0% in 2007. To put that into perspective, Asia grew by an impressive 7.4% in 2005.
Slowing down? Not exactly. What’s really happening is that the growth is continually exceeding the forecasts of even the most optimistic economists, and that’s how they want to keep it. So they’re continually seeking to err on the side of understating the growth potential.
China and India are expected to lead the pack. India, after growing by 8.1% in 2005, is expected to grow by 7.6% in 2006 and 7.8% in 2007.
China, which grew at 9.9% in 2005, is forecasted to expand by 9.5% in 2006 and 8.8% in 2007.
What that means is that you’re going to see more of the same gangbuster growth for at least the next two years … and probably a lot longer.
What about the U.S.?
I’m Glad You Asked.
Back here at home, the most recent GDP report showed that our economy grew at a very paltry 1.7% pace in the first quarter of 2006.
This is obviously not a minor pinhead difference that economists like to debate over. It’s a miles-wide gap that’s likely to make the difference between investment failure and investment success.
And make no mistake: It is NOT too late to begin.
Let me give you one example.
The Chinese Ministry of Railway reports that more than 316 million passengers traveled by rail in the first quarter of 2006. That’s 23 million or 12.7% more than the same period in 2005.
That additional traffic is no surprise. But it’s overwhelming China’s existing railroads. Yes, China has poured billions into its roads and aviation hubs. But its antiquated railroad system has not kept pace with its surging economy.
This is a big issue for China, especially with the upcoming 2008 Beijing Olympics. So the State Council (China’s Cabinet) has set out an ambitious plan to build an additional 62,000 miles by 2020.
But even that massive build-out won’t be nearly enough. So just last week, the Rail Ministry announced plans to build two new railroads on top of the US $250 billion already previously committed. That includes:
A new US $1.7 billion high-speed line between Beijing and Shanghai. This new line will travel at over 200 miles an hour and cut the current rail travel time between China’s two most important cities from 13 hours to 5 hours. Plus …
- The construction of a new US $4.3 billion Maglev — a high-speed magnetic levitation — line between Shanghai and Hangzhou.
Meanwhile, there’s a lot more than just railroads being built in China. Did you know that …
- 80% of the world’s cranes are now in China.
- Shanghai has double the number of skyscrapers as Manhattan: 40,000.
- China is building the equivalent of a city the size of Houston every month.
And guess what: Somebody is going to make a bundle of money from that build-out by investing in the right companies. For example …
Shanghai Prime Machinery, a unit of Chinese government-owned Shanghai Electric Corp., which manufactures turbine blades, cutting tools, electric motors, and bearings.
Shanghai Prime will be going public soon and plans to float a $167 million IPO on the Hong Kong Stock Exchange. The IPO is scheduled for April 27 and will be under the stock code 2345.HK.
I figure the company is sitting pretty because China’s industrial sector grew at 12.3% over the last five years; and that is sweet music to companies that manufacture industrial components.
How sweet? Shanghai Prime saw its sales jump by 68% to $1.42 billion yuan from 2004 to 2005 and saw its profits more than double, from $65 million yuan to $145 million yuan in 2005. And …
It Doesn’t Hurt That
The Hong Kong IPO
Market Is Red-Hot.
Last week, I told you about a fistful of big Asian IPO winners.
Now, you can add Advanced Semiconductor Manufacturing, a Shanghai-based chipmaker, to that list: The stock gained 33% in its first day of trading last Friday.
And don’t think for a minute that Hong Kong is the only Asian market where you can find attractive IPOs.
Himax Technologies, a semiconductor design company, also went public last week and raised $468 million — the largest Taiwanese IPO since Chunghwa Telecom went public in 2000.
The IPO was 600% oversubscribed, and for good reason: Himax has doubled its operating revenue each year for the last three years in a row and has an operating growth rate of about 50%, which means that roughly half of its sales drop to its bottom line.
I’m not saying you can throw a dart and buy any old Asian stock. I am telling you, though, that Asia is filled with story after story of growth, expansion, and prosperity. Asia is literally a modern-day gold rush.
Let me give you just four examples of booming businesses that have hit the news in the last week. Just the last week!
Asian Gold Rush #1: The Shangri-La chain of luxury hotels reported a 33% jump in profits to US $151 million. Nice.
But the number that really got my attention was the room rates in Hong Kong. The average room rates at the Shangri-La on Hong Kong Island in Q1 reached US $340 with an 85% occupancy rate. And the room rate for the Shangri-La in neighboring Kowloon reached US $250 on an 82% occupancy rate.
Ask anybody in the hotel business: occupancy rates and prices are directly correlated to the underlying economy. If that’s true (and I bet it is), it’s just another confirming indicator that Asia is booming.
Asian Gold Rush #2: Las Vegas Sands is in Macau in a big way. It’s already leased one-third of its one million square feet of luxury shopping space to 115 retailers at its two big resorts under construction in the area — Venetian Macau and Four Seasons Hotel Macau resorts. The first takers are companies like Montblanc, Dunhill, Franck Muller, Roger Dubuis and Mikimoto.
But get this. Las Vegas Sands is getting as much as US $400 a square foot for some of its space. Plus it will collect another 12% to 18% of gross sales. To put that into perspective, back in Las Vegas, the average rent at the Grand Canal Shoppes at the Venetian Resort is just $110 a foot, or only about one FOURTH the price. Wow! Business in Macau is booming!
Asian Gold Rush #3: At the North American International Auto Show in Detroit, Chinese automaker Geely Group unveiled its CK sedan. The Geely CK sedan — so called because it was developed in China and Korea — is scheduled to hit U.S. showrooms in 2008 at a base price of less then $10,000. Watch out, GM and Ford (if you’re still there)!
Asian Gold Rush #4: Office space lease rates in Taipei are also soaring. Rents for Grade A office space in Taipei rose by 2% in the last 90 days. What makes that so impressive is the fact that rents were able to jump even after absorbing 101 floors of prime, high-rent office space in the new 101 Building.
The 101 Building in Taipei is the tallest building in the world and one of the most impressive pieces of architecture I have seen in my life.
Bottom line: Ask not if Asia is booming. Instead, ask what you can do to participate prudently, while aiming for the most profit potential.
Best wishes,
Tony
For more information and archived issues, visit http://legacy.weissinc.com.
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.
15430 Endeavour Drive, Jupiter, FL 33478
