Why the United States Is the Worst Place to Invest

Tony Sagami

The U.S. economy grew by 1.8% in the first three months of this year. That is down from 3.1% in the last three months of 2010 and pretty clear evidence of that the U.S. economy is far from turning around.

Plus, the second-quarter numbers should be even worse given the effects of $4 gasoline, Mississippi flooding, stubbornly high unemployment, and the heavy millstone of too much government debt pulling our economy deeper into the economic mud.

Prosperity, however, is busting out all over Asia. Here are a few examples:

  • Indonesia, a rich natural resource country, was buoyed by rising commodity prices and grew by 6.5% in the first quarter.
  • Taiwan’s economy grew by 6.2%, almost a full percentage point higher than forecast.
  • Hong Kong’s economy grew by 7.2% thanks to strong exports and vigorous consumer spending by visiting mainland Chinese shoppers. Hong Kong’s leaders upped their full-year 2011 GDP growth forecast to between 6% and 7%.
  • China keeps growing like a weed, expanding by 8.7% in Q1 and is expected to hit 9% (or more) for all of 2011.
  • After growing by 7.2% in 2010, Malaysia continued to hum along by increasing by 4.7% in Q1.
  • The star of the Asian economic show was Singapore whose economy grew by a staggering 23.5% and lowered its unemployment rate to a three-year low.

The one thing that I continue to emphasize is that all of us understand that stock prices ultimately follow earnings. Show me a company that is growing its profits, and I will show you a stock that will ultimately increase in value no matter what happens to the stock market.

The corollary to that investment certainty is that corporate profits ultimately follow economic growth. Show me a country with a rapidly growing economy, and I’ll show you a bunch of companies that are growing profits.

As an investor, that means that your best chance to make profits is to put your investment dollars to work in a country whose economy is growing.

For my dollars, that means the worst place to invest your money is the sluggish United States while the best place is just about any place in Asia other than Japan.

I believe China has the most potential of any Asian market. The International Monetary Fund (IMF) thinks so too. The IMF recently forecast the Chinese economy will overtake the U.S. economy by 2016!

The easiest way to add some Chinese spice to your investment portfolio is through chain-focused exchange traded funds.

iShares FTSE/Xinhua China 25 Index ETF (FXI) owns the 25 largest and most liquid Chinese companies, so think of this as investing in the Dow Jones 30 Industrials of China. The top 10 holdings make up more than 60% of the fund so you will be heavily weighted with China Mobile, China Construction Bank, Industrial and Commercial Bank of China, China Life Insurance, and Bank of China.

SPDR S&P China (GXC) is managed by State Street and is also a large-cap fund with emphasis on financials as well.

PowerShares Golden Dragon Halter USX China (PGJ) isn’t as heavily weighted toward large-cap financials. It owns a lot of energy (21%), technology (18%), and telecommunications (16%).

Claymore/AlphaShares China All Cap (YAO) focuses on small caps.

If you are more of an individual stock investor, the good news is that there are more than 100 Chinese stocks listed in the United States on the NYSE and Nasdaq.

Yup ... more than 100 Chinese stocks that are as easy and cheap to buy/sell as General Electric or Boeing.

In fact, the following Chinese stocks went public in the United States in the last two weeks:

Renren (RENN) has been called the “Facebook of China.”

Phoenix New Media (FENG) is a Chinese internet news/information service.

China Zenix Auto (ZX) is a Chinese automotive wheel manufacturer.

Jiayuan.com (DATE) is a Chinese online dating service.

I discussed these four Chinese IPOs in my May 7 and May 14 video issues, so make sure you watch those videos if you want to learn more about them.

That isn’t an unusual amount of IPO activity from China either. In 2010, a total of 39 Chinese companies went public on the NYSE and NASDAQ stock exchanges, surpassing the previous record of 37 in 2007.

It looks like 2011 will usher in even more Chinese IPOs. Keep your eyes open for IPOs from VANCL, Taobao, Tudou, Taomee, Zhenai, Sunity, Qunar, 58.com, Dianping, Jing Dong, and PPLive.

Whether you’re an ETF or an individual stock investor, there is no shortage of investment options for you to choose from.

As always, you need to do your homework and decide whether any of these securities are appropriate for your personal situation and financial goals. And as you know, timing is everything when it comes to investing, so you should wait for these to go on sale before jumping in or wait for my buy signal in Asia Stock Alert.

Best wishes,

Tony

P.S. If you are looking for more specific buy/sell recommendations on my favorite Asian stocks, please consider a subscription to my Asia Stock Alert for only $199 a year. I think it may be the best investment you’ll ever make.


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Posted 05-20-2011 8:45 AM by Tony Sagami