Today's comment is by Eric Roseman, Investment Director for The Sovereign Society and editor of Global Mutual Fund Investor.
Dear A-Letter Reader,
Without a doubt, one of the hottest areas I'm looking at for the next few years remains the Asia Pacific Basin.
It was just 10 years ago that Asia was reeling from its worst economic crisis ever. But what a difference a decade makes. Since then, markets in this dynamic region have managed to do a complete 180 degree turn. In fact, you could argue that as Asia labored to dramatically improve its balance sheet since 1998 other regions have deteriorated, including many European countries and the United States.
From Shanghai to Singapore, the majority of countries have resurrected their economies from the near abyss a decade ago. Many countries continue to amass record foreign exchange reserves, bulging trade surpluses with the West and soaring stock markets. The bourses are also extremely cheap in countries like Japan, Thailand and Taiwan. Not to mention many of these countries continue to harbor undervalued currencies supported by generally healthy trade and budget balances.
This bullish cocktail of positive economic data should compel value investors to park their long-term wealth in Japanese yen, Thai baht and Taiwan dollars in local stock markets.
Property, Property, Property!
But even other regional markets, though not as extraordinarily cheap as Japan, Thailand and Taiwan, also offer great values in real estate.
Singaporean REITs, one of TSI's most profitable investments in Asia since last August, continues to attract substantial foreign direct investment dollars because the local real estate market is still cheap compared to other major cities worldwide. I plan on using additional market corrections to add to our Singaporean REITs, including Singapore's largest office building complex, which I visited in February.
Hong Kong REITs appear to have bottomed and offer excellent value now, after suffering last year amid the spectacular rise in domestic Chinese shares as conservative investors fled income-producing securities. In the April issue of TSI , I'm recommending one of Hong Kong's most undervalued REITs, down more than 15% from its initial public offering last year.
And Japan offers not only exceptional values in smaller companies following a 30% beating in 2006, but also in REITs.
For the first time in 16 years, the Japanese real estate market posted an increase in land values in 2006. Combined with an undervalued yen and modest income distributions, I'm also looking at buying Japanese commercial REITs in 2007.
Best Thing that Could Have Happened for Thai Stocks!
In addition to Japanese smaller stocks, which remain in the buy-zone, Thai and Taiwanese stocks are equally distressed. And they're distressed for entirely different reasons.
In Thailand, the military government botched their foreign-exchange controls last December. The Thai government tried to depreciate the Thai baht, and sent their stocks plummeting 15% instead. But with the recent appointment of a market-friendly finance minister and a gradual reversal of exchange controls, Thai equities are poised to lift off.
Bangkok stocks are now Asia's cheapest. They're trading at just 10 times trailing earnings and paying a 4.6% dividend. I expect the Thai baht to decline later this year versus the U.S. dollar and other foreign currencies following a dramatic rally since last year. With the Bank of Thailand now cutting interest rates to boost the economy, the time to buy depressed Thai stock has arrived.
Dot.com Bust Sunk This Economy -
But It's Headed for a Reprieve
In Taiwan, investors can purchase the only regional market than remains 35% off its all-time high almost 17 years ago.
Stocks in Taipei were hammered by the dot.com bust from 2000 to 2002. Now they trade for a song. Taiwan is a very large semiconductor manufacturing center, which is mainly supported by huge Chinese companies pouring billions into the economy.
The United States is also a significant investor in Taiwan. In fact, many U.S. multinationals are parked here. At some point, I expect Taiwanese stocks to post a major recovery, and like the rest of Asia, catch up with other hot global markets almost overnight as stocks post a lightening rally. Many blue-chip stocks in Taiwan trade at book-value or less, pay dividends in a strong currency and are rich with cash.
I'm extremely bullish long-term for Asia. This region has paid its economic dues over the last 10 years and now serves as a model for economic prosperity with over US$1.8 trillion dollars in combined foreign exchange reserves.
Cheap currencies, attractive stock market valuations and booming economic growth mean a portion of your investment dollars belong in Asia. At the Total Wealth Symposium May 2-5, I'll show you what to buy, how to invest and more importantly, how to sow the seeds for some serious long-term capital gains.
ERIC ROSEMAN, Investment Director