Three emerging Asia stocks to buy for growth
Simon Edelsten Jan 18, 2013
Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Simon Edelsten, co-manager of the Artemis Global Select Fund.
At first sight, 2013 seems to stretch ahead like some featureless desert. We now know that policy in America can be summed up as more of the same, policy in China as more of the same and, with the LDP regaining power in Japan, there will be more of the same there too. Those are the world’s three largest economies.
Their respective growth rates will probably be modest, fast – but not as fast as before – and somewhere just above zero if you are lucky.
And that is the good news. Europe meanwhile is a mess. While politicians negotiate closer union, economies stagnate, sovereign debt levels continue to rise and electorates become more sceptical of the benefits of the European project. If the German economy slows ahead of their election in September, politicians are unlikely to campaign for more aid to the rest of Europe. However, for global equity investors, this gloomy background offers one advantage: it pulls equity valuations down to decent levels.
We have a focus on the Asean region (Singapore, Thailand, Myanmar, Philippines, Vietnam), chosen by US president Barack Obama for his first overseas visits. American businesses are poorly represented in many of these countries, having concentrated their efforts on China. So my first tip is First Pacific (HK: 142), a leading Asian investment company.
It offers exposure to Indonesia’s leading instant-noodle maker, the main mobile phone company in the Philippines, and one of its main utilities, which is busy connecting rural households to clean water and mains electricity. These firms all benefit from income growth in Asia’s large, young and increasingly well-educated populations.
Meanwhile, China’s new leadership will authorise a new investment programme. This should help it meet current growth expectations, after disappointing over-excited investors for the past two years. Having raised average income per person from below $3,000 per annum in 2000 to over $8,000 per person last year, the country is likely to continue to grow vigorously – albeit by around 6% a year rather than the 10% of the last decade.
China Mobile (HK: 941), with 700 million subscribers, should see sharp growth in traffic as smartphones become affordable and data traffic rises. The stock yields 3.5% and has no debt.
The big surprise for 2013 could come from America. The US economy is not particularly export-focused, so it can recover even as European economies stagnate. And while European electorates seem reluctant to vote for radical restructuring, the US has already restructured its financial system. The biggest unexpected boon for the US, however, comes from cheap power, thanks to the shale gas revolution.
The US economy is fuel-inefficient compared with Europe, so cheap gas – leading to cheap plastics and cheap electricity – acts as a shot in the arm for US manufacturing businesses. Indeed, a drop in the cost of fuel has single-handedly inverted US competitiveness in basic products such as PVC, which they now export to Asia, having imported it for the past few decades.
Dow Chemical (NYSE: DOW) is the largest chemical company in the US and its earnings have been depressed by the weak economy. Cheaper gas prices should help margins in its polyethylene division and rising construction activity should boost volumes over the next two years.
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