HSBC & Jim Rogers – The Siegfried & Roy of the Asian Tigers
Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The global banking group HSBC (LSE: HSBA)(NYSE: HBC) may be the single best stock for investors interested in emerging Asia (or even emerging Everywhere). However, for those wanting to avoid the headache of worrying about specific companies being able to execute (and less inclined to study the Dark Arts of BFSI accounting) – or for Americans legally denied the right to invest in some Asian economies by the US government – commodities legend and George Soros’ estranged former partner Jim Rogers might also be a good bet.
The Rogers International Commodities Index (NYSEMKT: RJI) has outperformed all the other commodity funds on the market since its inception and is largely predicated on Asian demand (and Western political and social intransigence at bringing new primary resources on line). Although, when asked the Adventure Capitalist tends to tout the Rogers International Commodities Agriculture Index (NYSEMKT: RJA) as the bull-in-waiting (though it has yet to match the returns of his other commodity indexes).
Even with the proliferation of ETFs and other funds, there is still woefully inadequate coverage of emerging markets in Asia. Most focus on Greater China, South Korea, and Japan or predicate their strategies on nations’ debts or rely too heavily on the energy sector. A few try to capture the most promising region of the continent, Southeast Asia (a varied collection of economies growing 5-8% annually with a combined market larger than India or Brazil).
Unfortunately, funds such as the Global X ASEAN 40 ETF (NYSEMKT: ASEA) are usually limited to the region’s established economic backbone running from Bangkok to Singapore, and tend to overlook the creatively destructive Philippines (less than 1% of Global X) and overindulge in the destructively uncreative Indonesia (21%). Current approaches also fail to find ways to capture the growth in ASEAN's least developed members, which will only become increasingly attractive to those disenchanted with the Middling Kingdom up north and frustrated by the Permit Raj to the west.
Also, the current favorite of the region among analysts and fund managers, Indonesia, would be great if it showed any signs of bucking the oil curse. Sadly, most of the revenues from its staggering amounts of natural resources remain mortgaged well into the future – and as if the Japanese occupation had never ended, the country still refines little of its own oil and is only slowly beginning to engage in value-added activities that became priorities decades ago for more sophisticated energy economies.
Indonesia’s large population skews numbers and obscures the fundamental cracks in its enfeebled market, and while its current leadership is the least problematic since independence, there does not appear to be any major reforms in the pipeline that would free up the well-positioned, densely-populated, richly-endowed archipelago that sits astride the world’s emerging economic crossroads. Maybe this decade will bring changes, especially as Australia rides its commodities boom, but for now, Bali resorts seem to be the only investment that can attract a steady stream of kangaroo dollars. A straight commodities investment like Rogers' seems the most prudent approach for those wanting exposure to what Indonesia might have to offer this decade.
Of course the international media tends to focus excessively on its favorite Asian darjeelings: Bhutan and Bangladesh. Bhutan (and the 19 stocks listed on its exchange) gets annual attention for its “Gross National Happiness” farce, which has kept the country in gross national helplessness while Nepalese and Chinese interests illegally log the crap out its national patrimony (which being owned by the state is up for grabs and is not being protected effectively by individuals, let alone "the people").
Concurrently, the region’s other over-hyped story, Bangladesh and its microfinance champion Grameen Bank, make the international poverty pimps feeding at the foreign aid trough feel better raising “awareness” about trendy ideas without having to embrace real reforms needed to allow small- and medium-sized enterprises (forget about micro-) to flourish into large and mega caps. If anything, savvy elites and their regulatory handmaidens have been using micro-advocates as a moral proxy for increased protectionism and a way to supress middle class upstarts (a classic Baptist and bootleggers maneuver). However, if Myanmar begins to liberalize this decade allowing for increased economic activity throughout the region, it is more likely the Hindu-Christian Seven Sisters of India will have the opportunity to grow faster than either its Buddhist neighbor to the north or its Muslim neighbor to the south.
As for the junior members of ASEAN, sure, Myanmar is currently mired in the cronyist of crony systems (further twisted by a reliance on state astrologers for policy advice and a mystical reverence for the number nine), Cambodia still clings to misery tourists for its main source of income, and Laos is still casting about for other revenue streams besides flyover fees from airlines using its airspace. Yet, Vietnam’s growth could provide a model for them to follow (if not a strong pull) should the poorest members' leadership decide to join the rest of the region’s boom. Moreover, a competitive Vietnamese economy could exert a powerful force on Thailand, which could use more incentives in the region to arrest its own anti-market backsliding.
[continued in part 2]
Nick Slepko has no position in any company mentioned here at the time of publication. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
