HSBC & Jim Rogers – The Siegfried & Roy of the Asian Tigers (part 2)
Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
[continued from part 1]
The three most promising frontier Asian economies – Vietnam, Sri Lanka, and Mongolia – remain difficult investments for the average American limited to US-listed publicly traded instruments. Yet, all three economies have private American and Chinese capital and political interests conspiring to provide for the trio’s successful futures. Moreover, the Asian trinity possess adequate leadership (with functional levels of corruption) that continue to demonstrate that they know how to use their commodities to generate the capital needed to take them into the next phase. Both HSBC (LSE: HSBA)(NYSE: HBC) and the Rogers International Commodities Index (NYSEMKT: RJI) remain reliable, divergent options for gaining broad exposure to these markets.
Vietnam’s transitional economy by all measures is better prepared than China’s when it was at a similar stage of development (and has slightly less geriatric leaders). Moreover, it now has an even more sophisticated Singapore ready to help guide it into the world market. Not only have celebrity chefs like Anthony Bourdain and Bobby Chinn (a former Wall Streeter) made Vietnam the globe's cultural celeb in recent years, but substantial ties with the US and worldwide Vietnamese communities far more pragmatic than their Cuban counterparts have already begun to open up opportunities. Ho Chi Minh City, Saigon to those that know better, is seeing its economic ship come in thanks to remittances and investments from the former Boat People that have learned the benefits of market systems in Hong Kong, North America, and Europe. Moreover, former Vietnam Conflict POW Sen. John McCain has been a vocal proponent of stronger links with Hanoi – subject to increasing the pace of economic and social reforms.
More enticing for investors interested in demonstrations of the market’s vitality is that Vietnam is already the world’s second biggest rice exporter – even without the agricultural reforms that have made Thailand number one. Heartening is that farming is a key factor in driving Vietnamese reforms, and is the easiest to improve. Agriculture is the single largest contributor to the domestic economy, accounts for the most export revenue, and is by far the country's largest employer. The increasing rice production from India and Burma/Myanmar is likely to pressure Vietnamese political leadership to implement market reforms to spur growth and capture the value that is currently wasted under the present system.
A more recent civil war survivor, Sri Lanka, has been putting its peace dividend to good use and shown consistent 6-8% annual growth across all its industries while keeping unemployment under 5%. The country’s political and business elites have also shown themselves skilled at balancing American, Chinese, and Indian interests to great benefit. With government employing less than 15% of the workforce (America has recently crested 17%), and well-regarded tea and textiles industries providing domestic capital needed for further expansion, it was a welcome affirmation when the Colombo Stock Exchange jumped 125% after the conclusion of the country’s civil war. The exchange continues to be one of the top performing in the world every year.
Even more telling of what the future holds is Mongolia, the birthplace of the global economy. In preparation for entering the small Mongolian market, HSBC been handling some minor projects at the periphery. Observers speculate that the bank is testing to see how it will fare against Russia’s Renaissance Capital. Like HSBC, RenCap has been interested in diversifying aggressively out of its home base and has been rewarded recently with successes in frontier markets (especially Africa). The Australian-founded Moscow-based firm is likely to be HSBC’s greatest competitor in Mongolia if RenCap decides to court decision-makers in Ulan Bator. Furthermore, the battle for Inner Asia may be the prelude to a greater game that could break out if HSBC is compelled by its Arab, Chinese, British, and French clients to enter the African markets from its significant base in Mauritius – the bilingual (French and English) Indian Ocean island through which the plurality of FDI for Africa and India flows. Meanwhile, HSBC is already the biggest international bank in Vietnam and Sri Lanka, markets far more challenging than Mongolia. HSBC may be welcomed (along with Turkish investors) by the increasingly astute Mongolian politicos as a mitigated Chinese influence that could balance Russian designs.
In the same way HSBC has proven to be a reliable key to the Brazilian economic cipher, the bank may provide investors with the right kind of exposure to the far corners of Asia. All the small- and medium-sized enterprises servicing the Mongolian, Sri Lankan, and Vietnamese economies probably won’t go public for years, and the large caps that currently exist are, with few exceptions, government-linked corporations that are as lumbering and inept as Indonesia’s state oil and gas company, Pertamina. However, a stable financial institution with century-old local roots like HSBC is well-positioned to capture much of the value for investors looking for a safe, well-executed entry point into these economies.
With HSBC shares trading at historic lows, now would be a good time to consider the long-term prospects of HSBC. For those more interested in riding the commodities boom that will drive these economies for the next decade, Jim Rogers tact might be a less taxing alternative.
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.