Asian stocks: Asian tigers stumble

Posted February 3, 2008

'When something goes wrong in the U.S. and that market drops, then everybody else’s market drops as well. And sometimes, that’s justified, and sometimes it’s not. But in Asia, you’ve got some markets like China that… doubled last year.' – Martin Hutchinson, editor of The Money Map Report

Baltimore – (TFN): The following was taken from the transcript of this week's TFN Smart Trading Action Alert video featuring Martin Hutchinson. Watch this video.

Laura Cadden: In the third week of January, Asian and European stock markets experienced their biggest multi-day declines since April 1990, with fears of the U.S. recession. Then, just as quickly, they recovered with the news of the Fed’s emergency rate cut. With Wall Street continuing to see losses, how safe a bet are Asian stocks for today’s investors?

My guest this week is Martin Hutchinson, editor of The Money Map Report. Now, you've always been very bullish on Asian stocks. With the Asian MSCI Index going down to close to 25 percent below its November highs, do you think we’re seeing a bear market?

Martin Hutchinson: Well, I think what happens is that the baby gets thrown out with the bath water. That when something goes wrong in the U.S. and that market drops, then everybody else’s market drops as well. And sometimes, that’s justified, and sometimes it’s not. But in Asia, you’ve got some markets like China that have really got ahead of themselves. They doubled last year.

And you’ve got other markets, like Japan, that even managed to drop slightly during 2007. And so there’s no way, for example, that the Japanese market is overvalued, and indeed, looks very good value at these levels. So I think it varies from market to market, but I think we’re in overall Asian bear market, no.

Laura Cadden: How strong do you feel the Asian markets are really? Can they prosper during a drastic downturn in U.S. economy?

Martin Hutchinson: Well, the gross world product is moving all the time towards the high population countries of Asia, the China’s, the India’s. And so therefore every time we have one of these cycles, they’re less dependent on the U.S. And also, there are other big markets, Europe, doesn’t have the same problems as the U.S. Britain had a housing bubble. Spain had a housing bubble like the U.S. did. But Germany hasn’t had one, at least not since the middle 1990s. German house prices are down over the last ten years.

And so therefore, Asia has the possibility of finding other markets. And those markets that haven’t got ahead of themselves I think will do fine.

Tired of reading? Watch the financial video.

Laura Cadden: Which markets do you think will do best in such a scenario?

Martin Hutchinson: Well, I think you’ve got Japan where the last bubble they had was in 1989, which hardly anybody remembers. And that, I think, has dropped over the last year or so. But the domestic economy is in perfectly good shape. And so I think provided you’ve got Japanese companies that are domestically oriented, they’ll do fine.

Then you’ve got Korea, which was on a very low valuation; didn’t go up much last year. The whole market’s only on about 12 times earnings. And they’ve just elected a pro-business government, and so I think Korea is looking good.

And then India itself, the market as a whole may have got a bit ahead of itself, mostly the outsourcing companies and the tech companies. But I think the other Indian companies that have tremendous growth stories over the long-term are where you should buy because that’s where the world’s going in the next 10 or 20 years, and you’re not paying too much. So long as you’re not paying 80 times earnings, it’s a good deal.

Laura Cadden: And what effect do you think this rate cut is going to have on Asian currencies?

Martin Hutchinson: Well, I think it will tend to make the dollar fairly weak, and that will make the Asian currency strong. The China renminbi – they’re already strengthening more rapidly than they had been, so it’s up to somewhere around about 720 or so now, and that’s 15 percent above where it was when it started moving in 2005.

So I think you’ll see China, Japan and Korea all gradually strengthening against the U.S.

Laura Cadden: So looking at the recent corrections, do you still feel right now is a good time to buy Asian stocks?

Martin Hutchinson: Well, I think the recent corrections make it better because if good stuff and bad stuff both drops 15 percent, then the good stuff has become a wonderful buy, 15 percent cheaper for no real reason. And so I think there’s some very good values in Asia right now. And particularly, the smaller countries in Japan that aren’t dependent on exports.

So there’s a fund – the Japan Smaller Companies Fund, JSC, and you might want to look at that. And then in Korea you’ve got a number of companies that are in pretty good shape and have basically Asian businesses. Maybe the local bank, Kookmin Bank, which is New York KB, that’s only about eight times earnings. I mean, that’s a ridiculous valuation for a bank.

And yes, I can assure you, they don’t have U.S. subprime mortgages there. They’ve got Korean mortgages, and you worry about their financing of kimchi parlors, but at least that’s a completely separate problem. And in fact, they haven't had a huge booming career, and so I believe Kookmin is very sound and will benefit from the growth.

And then India you’ve got Tata Motors, which has just unveiled its $2,500.00 car, which looks to me very much the way the world automobile industry is going because you’ve got a huge number of India consumers. You’ve got very cheap wage rates. You’ve got the ability to produce for that big domestic market. Well, if that’s the way the world automobile industry is going over the next 15 years, then really buying Tata or something like that, buying part of the future. You probably want to buy that when it’s not overvalued. That’s TTM on the New York Stock Exchange.

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