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North American investors and Asia’s broken piggy bank

Asia and America will switch places as the global economy recovers, says this U.S. advisory, which has five Asian stocks to recommend.

When this economic mess is over (and yes it will be over, some sunny day), a great change will have taken place.

The world, in a sense, will have been turned upside down.

North Americans will start using their piggy banks and Asians will start breaking theirs.

Indeed, it will happen across the world: “Societies in the developed economies will begin to save more, while people in developing nations will begin to spend, nurturing domestic demand economies.” That is the forecast of Mr. Yiannis G. Mostrous, writing in Personal Finance.

This is not going to happen overnight. It’s hard to envision empty shopping mall parking lots in spend-crazy North America. But the economy is already tightening its grip on people’s wallets.

And what does this all mean for investors? The greatest growth in the future will take place in Asia.

You can start thinking about putting your investment dollars in the Orient now, says this analyst, who has five investments to recommend.

The real game-changer

China and India see the future clearly, says Mr. Mostrous. They both “have realized that factory building and manufacturing to satisfy consumer needs in the developed world can’t remain their primary growth engine.”

So they have turned their attention to boosting domestic demand. Indeed, the current crisis is speeding up the process.

“True, Asia will remain the world’s factory for the long term,” says the analyst. They have all the infrastructure, capacity and technology to produce the world’s finished goods for years to come.

When the economy revs up again, these factories will be ready to produce the world’s goods. “This is a long-term positive for Asia, too,” says the analyst, “but the development of a growing middle class will be the real game changer.”

Asia’s high savings rates will recede, he adds. “Central banks won’t be so keen to channel savings abroad; the money will be needed at home.”

Slowing but not slow

Consider China’s efforts to keep its economy moving as the world slows down. It begins with a US$600 billion infrastructure package that will benefit Chinese companies and consumers.

Mr. Mostrous published a chart demonstrating that retail sales growth in China rose 21 per cent last year. According to the latest figures, it has slowed to “only” 19 per cent.

The same “slowing but not slow” notion applies to China’s GDP growth. In the last quarter of 2008 it wound down to 6.8 per cent, the sixth consecutive quarter in which it lost momentum and the weakest quarter since 2003. Bad news?

Only relatively, says the analyst. The Chinese economy still grew 9 per cent last year and should grow 7 to 8 per cent this year if rate cuts and other measures take effect. What wouldn’t we give for half that number?

“This scenario will signal a decoupling from its foreign-demand based past and signifies the economic leadership is shifting from West to East.”

Here’s how to start cashing in on this sea change. To do so we travel to Taipei, London, the Chinese mainland and India.

Getting bigger in Taipei

Mr. Mostrous begins offshore, in Taiwan. Already the biggest telecom services firm in that nation, Chungwa Telecom (NYSE-CHT) is going to get much bigger.

The company is getting into the property development business, largely by redeveloping property and buildings it already owns. The plan will take time, but promises to pay off with big revenues, especially as Taipei welcomes more Chinese money.

The stock has a dividend yield near 6 per cent and lots of cash to reward shareholders. It’s a buy under $20 and closed Friday at $14.76.

The next company actually resides in London. But Standard Chartered (LSE-STAN.L; OTC-SCBFF) has much of its business centred in Asia. Strong in retail banking, it has a variety of income streams.

Standard’s business will suffer with the economic slowdown across Asia, but its “well diversified loan book and its limited exposure to toxic paper should provide some cushion.” It’s a buy on the London exchange below GBp1,000. It closed Friday at 655.

Quality in turbulent times

China Life Insurance Company (HESK [Hong Kong]-2628; NYSE-LFC) is the largest insurer on the Chinese mainland if you count total premiums and the most territory covered.

The stock has been hit hard but “the company offers quality in turbulent times,” says Mr. Mostrous. It is well established in the rural areas that will be the next area of rapid growth in China.

Through a tough year, China Life retains a clean balance sheet and a strong capital position. Buy it under $50, says the analyst. It’s at $42.46.

With over 300 million customers, China Mobile (HESK-941; NYSE-CNL) is one of the largest mobile services firms in the world. It covers 31 provinces and municipalities across China.

The potential for further growth is immense. The so-called “penetration rate” is 40 per cent for the general population and just 19 per cent in rural areas. Its high earnings and skilled management adds to its attractions, says Mr. Mostrous. It’s a buy under $60 and is well below that at $43.67.

Finally we travel to India and its now world-famous IT businesses. The second largest is Infosys Technologies (NASDQ-INFY). This giant has a professional force of more than 100,000.

The company has a host of clients in banking, financial services, retail, utilities and manufacturing in the Americas, Europe and across the Pacific. Indian tech stocks peaked in 2006 and have since receded.

You can expect short-term headwinds, says the analyst, thanks to Infosys’ large financial clientele, but the company’s crack management team and strong balance sheet should keep it on course. Buy under $35. It closed Friday at $24.16.

You don’t have to break your piggy bank to buy these stocks. Just accumulate them at good prices, this analyst suggests, and wait for Asians to start taking the hammer to their own piggy banks.