Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Andrew Graham, manager of the Martin Currie Pacific Trust.
The global economic outlook remains uncertain. In Europe, the European Central Bank's latest bond-buying programme will take time to implement, as it requires recipients to swallow their pride and ask for help. The US economic recovery, meanwhile, is shallower than a normal post-recession bounce. And while we now know the names of the US president and the new Chinese leadership, many more questions are still to be answered.
How will America deal with its approaching fiscal cliff? And how will China's new rulers respond to the country's slowing economy?
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But I'm not overly concerned about Asian growth. Lower inflation gives regional monetary authorities scope to loosen policy. So Asian economies should be able to absorb the impact of reduced demand from the West. Domestic consumption trends are underpinned by the generally low, but growing, penetration of consumer credit coupled with rising living standards.
A host of companies are thriving and a large number of success stories are being driven by the growing personal wealth of the Asian consumer. Here are three I like.
In many parts of Asia, rates of car ownership remain extremely low. Western vehicle ownership is around 600 to 750 per 1,000 people, while in India, the Philippines, and China the figure is still well below 100. Given the size of the populations involved, the opportunity for well-run companies is vast. Chinese auto manufacturer Dongfeng Motor Group (HK: 489) is particularly well placed.
The stock is attractively valued after underperforming this year on general worries about a slowdown in the Chinese economy. The company also has joint ventures with Honda and Nissan, but its shares have suffered as tensions between Japan and China over the Senkaku/Diaoyu islands intensified. Longer-term, however, rising Chinese wages will boost demand for Dongfeng's good-quality, middle-of-the-range cars.
The tourist industry is another popular destination for rising disposable income. One sub-sector profiting from Asia's growing expenditure on leisure and tourism is the gaming industry. Lying to the western side of the Pearl River Delta, the former Portuguese colony of Macau is especially well placed as the only serious catchment area for this rapidly growing element of Chinese discretionary consumer spending. Among the best-positioned stocks is SJM Holdings (HK: 880), a Macau-based casino-operator that is benefiting from the expansion of road and rail links with mainland China and Hong Kong.
Lastly, the free-trade agreement between China and ASEAN, the Association of SouthEast Asian Nations, which came into effect on 1 January 2010, created the world's third-largest free-trade area by GDP and the biggest in terms of population. The increased volume of tradable goods being moved throughout the region will boost firms involved with transport and logistics.
I have recently invested in Singapore-listed Hutchison Port Holdings Trust (SGX: HPHT), which operates ports in Hong Kong and China. Given the potential for growth in Chinese cargo traffic to complement the cash flows from the mature Hong Kong port, and that the stock is currently trading on a yield of over 8%, Hutchison looks to be a well priced way into some world-class assets.
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