Holding On
FALLS CHURCH, Va.–The global markets and the Morgan Stanley Capital International (MSCI) World Index continue to resist bad news. They’re up 9 percent for the year, collectively, including the US.
This is a very encouraging development, although we’re not out of the woods yet. Unwinding all these leveraged positions at the financial/banking level could sour investors’ sentiment.
It’s still my view that the markets will end the year strong, although I expect some weakness sometime between now and the end of October. Whatever happens, we’re well positioned to finish 2007 in the black.
Asian markets should benefit from a scenario where the US economy avoids recession but the dollar remains relatively weak.
During down times in the US, Asian markets will suffer given their size and perceived risk. But that dynamic is changing; Asia no longer gets pneumonia when the US catches a cold.
Short term, things may get volatile. But long term, Asian economies are better positioned than ever to withstand adversity. Asia market perma-bears will have to wait a long time for an economic meltdown in the region.
After all, the majority of the Asian economies have current account surpluses, while debts have been substantially reduced and deficits are also contained.
Turning to the SRI portfolios, there are three more companies to update.
Alternative Portfolio holding Sinopec (NYSE: SNP) reported better results than forecast.
The company is China’s leading integrated energy and petroleum company, dominating the eastern and coastal areas, which account for 74 percent of China’s total petroleum demand. It’s the most-leveraged Chinese oil company in the complex refining business, which remains an important sector for the industry–especially in Asia.
The most impressive numbers came from the turnaround in its refining and marketing divisions where net profits increased by 66 percent year-over-year.
Sinopec continues to expand its E&P operations though and is laying the foundations for a long–term growth model based on improved operation procedures and new projects. The stock trades to a discount to the sector and represents long-term value. Buy Sinopec.
Bio-Treat Technology (OTC: BOTRF) also reported earnings recently with profits growing by 70 percent year-over-year. The company is one of China’s leading wastewater treatment companies.
It specializes in the use of biotechnology to treat polluted water so it can be re-released into the environment. A relatively young company, Bio-Treat was established in 1993 and was listed in Singapore in early 2004.
The company has a unique proprietary technology, has been a long-time operator in China and has built a strong track record. It’s concentrated in the wastewater treatment market and because of its relative size, Bio-Treat doesn’t compete head-to-head with the big multinationals that control the biggest part of China’s water supply and water treatment market.
Bio-Treat concentrates on medium-scale projects and has been quite successful bidding on them, winning enough to build a strong order backlog. The company is working to improve existing technology and to create new ones (working most recently with a Japanese company), in order to offer new products and gain access to new growth segments of the market.
A high-risk, high-return play on an investment theme (water treatment) I expect will evolve over the course of several years. Buy Bio-Treat Technology.
Finally, Long-Term Portfolio holding Chunghwa Telecom (NYSE: CHT) also released first-half numbers. As expected, the company experienced a stable period with positive single digit revenue and profit growth.
Chunghwa is the leading integrated telecom service provider in Taiwan with 95 percent market share in the fixed line segment of the market, 39 percent in wireless and 84 percent in broadband. Its privatization was completed in August 2005 when the Ministry of Transportation and Communication, its largest shareholder, reduced its stake to below 50 percent.
The two most important aspects of the results were the reduction in labor through an early retirement plan and the announcement of a share repurchasing program. The latter is expected to be around 250 million shares, which will be bought in the open market and then retired.
Although the company does not offer the “excitement” that other stocks in the SRI coverage do, it’s one of the steady ones of the portfolio, because of its ability to generate strong cash flows, a solid and sustainable 5.6 percent yield, and its generally stockholder friendly management. Buy Chunghwa.
Fresh Money Buys
Because the investment process is constant, if you’d like to add to your positions in Portfolio recommendations or allocate new funds in a diversified way, focus on the following markets (consult the portfolio tables for details), in order (for both countries and sectors):
. South Korea (banking, Electric Power)
. Hong Kong (real estate, publishing, infrastructure)
. India (pharmaceuticals)
. Malaysia (ETFs)
. Russia (telecommunications, energy)
. Taiwan (technology, telecommunications)
. Europe (oil, pharmaceuticals, industrials, communications equipment)
. Singapore (telecommunications, banking, industrial)
. Japan (industrials, banking)
. China (consumer, coal, power, oil, water)
. Macau
How SRI Works
The SRI Portfolio has been constructed around the view that domestic economic demand and investment are driving Asia’s economic ascent.
The Portfolio should be viewed as a whole rather than an assortment of stocks. It’s my hard-earned assumption that investors seldom follow such advice, so I also offer some direction in an effort to assist with the decision-making process in the Fresh Money Buys section.
In this section, readers can find a guide as to how I rank countries and sectors at any point in time. The ranking changes often, so pay attention.
The ranking starts with the countries I prefer and then lists specific sectors you should look into. When I mention a sector, it’s assumed that the first pick will be from the Long-Term Holdings and then, if more exposure is warranted, from the Alternative Holdings part of the Portfolio. Of course if a country isn’t represented in the Long-Term Holdings, refer to the Alternative Holdings for a selection (as is the case for Macau).
Portfolio recommendations should be taken at face value, in the sense that if a stock is recommended as a buy and trades below the price indicated in the Portfolio tables, the recommendation stands for newcomers as well as longer-term readers.
Occasionally I recommend–as I did in the beginning of 2007–that long-term readers take profits off the table.
I also advised long-term readers to take profits from ICICI Bank and Dr. Reddy’s Laboratories–without selling the stocks outright. Take any gains you have and leave the initial capital invested.
That meant, I expected investors to look at their profits (i.e., how much money they’ve made above the initial investment) and then calculate how many shares they needed to sell in order to take those profits off the table.
If you’re not a “long-term reader,” chances are you probably don’t have profits to take from the specific stock; you’re unaffected by the recommendation. The fact that I haven’t advised selling the stock outright indicates that it remains a good, long-term holding.
SRI has one main portfolio, the Long-Term Holdings, and an alternative, the Alternative Holdings-Permanent Hedges. Look first to the Long-Term Holdings for asset allocation in the markets covered here.
In the Alternative Holdings-Permanent Hedges Portfolio, readers can track permanent hedges and shorter-term recommendations. It also includes companies I’ve recommended for longer-term or more fundamental reasons, and they represent additional exposure to favored investment themes. For example, Lukoil provides extra exposure to a favored theme–Russia and energy.
On the left-hand side of the Web site’s main page, under Portfolio Performance, you can get a snapshot of the Portfolio’s return compared to other major indexes.
On the Portfolio page, you can click on the asterisk next to each holding to review the original commentary and recommendation. I plan to enhance the Portfolio table with extra features and welcome comments and suggestions.
Many new readers have also asked, “What do we do when the market drops substantially?”
Since SRI’s inception, I’ve been skillful and lucky enough to have booked profits before precipitous falls, in which case I recommended sitting still through the turmoil. I will also get word to you via a Flash Alert if events turn too quickly.
SRI is built around a set of core themes. I often revisit those themes or certain analyses through a link to a previous article or by reproducing relevant paragraphs. You can also read previous issues in the Archives to gain an understanding of the investment philosophy of the publication.
Or you can ignore my advice and try to find the next big hitter the Portfolio will produce. You may succeed, but be aware that I don’t play that game; “fast guns” are wasting their time with this publication, as well as Asia and the rest of the international markets as an asset class.
This is a very encouraging development, although we’re not out of the woods yet. Unwinding all these leveraged positions at the financial/banking level could sour investors’ sentiment.
It’s still my view that the markets will end the year strong, although I expect some weakness sometime between now and the end of October. Whatever happens, we’re well positioned to finish 2007 in the black.
Asian markets should benefit from a scenario where the US economy avoids recession but the dollar remains relatively weak.
During down times in the US, Asian markets will suffer given their size and perceived risk. But that dynamic is changing; Asia no longer gets pneumonia when the US catches a cold.
Short term, things may get volatile. But long term, Asian economies are better positioned than ever to withstand adversity. Asia market perma-bears will have to wait a long time for an economic meltdown in the region.
After all, the majority of the Asian economies have current account surpluses, while debts have been substantially reduced and deficits are also contained.
Turning to the SRI portfolios, there are three more companies to update.
Alternative Portfolio holding Sinopec (NYSE: SNP) reported better results than forecast.
The company is China’s leading integrated energy and petroleum company, dominating the eastern and coastal areas, which account for 74 percent of China’s total petroleum demand. It’s the most-leveraged Chinese oil company in the complex refining business, which remains an important sector for the industry–especially in Asia.
The most impressive numbers came from the turnaround in its refining and marketing divisions where net profits increased by 66 percent year-over-year.
Sinopec continues to expand its E&P operations though and is laying the foundations for a long–term growth model based on improved operation procedures and new projects. The stock trades to a discount to the sector and represents long-term value. Buy Sinopec.
Bio-Treat Technology (OTC: BOTRF) also reported earnings recently with profits growing by 70 percent year-over-year. The company is one of China’s leading wastewater treatment companies.
It specializes in the use of biotechnology to treat polluted water so it can be re-released into the environment. A relatively young company, Bio-Treat was established in 1993 and was listed in Singapore in early 2004.
The company has a unique proprietary technology, has been a long-time operator in China and has built a strong track record. It’s concentrated in the wastewater treatment market and because of its relative size, Bio-Treat doesn’t compete head-to-head with the big multinationals that control the biggest part of China’s water supply and water treatment market.
Bio-Treat concentrates on medium-scale projects and has been quite successful bidding on them, winning enough to build a strong order backlog. The company is working to improve existing technology and to create new ones (working most recently with a Japanese company), in order to offer new products and gain access to new growth segments of the market.
A high-risk, high-return play on an investment theme (water treatment) I expect will evolve over the course of several years. Buy Bio-Treat Technology.
Finally, Long-Term Portfolio holding Chunghwa Telecom (NYSE: CHT) also released first-half numbers. As expected, the company experienced a stable period with positive single digit revenue and profit growth.
Chunghwa is the leading integrated telecom service provider in Taiwan with 95 percent market share in the fixed line segment of the market, 39 percent in wireless and 84 percent in broadband. Its privatization was completed in August 2005 when the Ministry of Transportation and Communication, its largest shareholder, reduced its stake to below 50 percent.
The two most important aspects of the results were the reduction in labor through an early retirement plan and the announcement of a share repurchasing program. The latter is expected to be around 250 million shares, which will be bought in the open market and then retired.
Although the company does not offer the “excitement” that other stocks in the SRI coverage do, it’s one of the steady ones of the portfolio, because of its ability to generate strong cash flows, a solid and sustainable 5.6 percent yield, and its generally stockholder friendly management. Buy Chunghwa.
Fresh Money Buys
Because the investment process is constant, if you’d like to add to your positions in Portfolio recommendations or allocate new funds in a diversified way, focus on the following markets (consult the portfolio tables for details), in order (for both countries and sectors):
. South Korea (banking, Electric Power)
. Hong Kong (real estate, publishing, infrastructure)
. India (pharmaceuticals)
. Malaysia (ETFs)
. Russia (telecommunications, energy)
. Taiwan (technology, telecommunications)
. Europe (oil, pharmaceuticals, industrials, communications equipment)
. Singapore (telecommunications, banking, industrial)
. Japan (industrials, banking)
. China (consumer, coal, power, oil, water)
. Macau
How SRI Works
The SRI Portfolio has been constructed around the view that domestic economic demand and investment are driving Asia’s economic ascent.
The Portfolio should be viewed as a whole rather than an assortment of stocks. It’s my hard-earned assumption that investors seldom follow such advice, so I also offer some direction in an effort to assist with the decision-making process in the Fresh Money Buys section.
In this section, readers can find a guide as to how I rank countries and sectors at any point in time. The ranking changes often, so pay attention.
The ranking starts with the countries I prefer and then lists specific sectors you should look into. When I mention a sector, it’s assumed that the first pick will be from the Long-Term Holdings and then, if more exposure is warranted, from the Alternative Holdings part of the Portfolio. Of course if a country isn’t represented in the Long-Term Holdings, refer to the Alternative Holdings for a selection (as is the case for Macau).
Portfolio recommendations should be taken at face value, in the sense that if a stock is recommended as a buy and trades below the price indicated in the Portfolio tables, the recommendation stands for newcomers as well as longer-term readers.
Occasionally I recommend–as I did in the beginning of 2007–that long-term readers take profits off the table.
I also advised long-term readers to take profits from ICICI Bank and Dr. Reddy’s Laboratories–without selling the stocks outright. Take any gains you have and leave the initial capital invested.
That meant, I expected investors to look at their profits (i.e., how much money they’ve made above the initial investment) and then calculate how many shares they needed to sell in order to take those profits off the table.
If you’re not a “long-term reader,” chances are you probably don’t have profits to take from the specific stock; you’re unaffected by the recommendation. The fact that I haven’t advised selling the stock outright indicates that it remains a good, long-term holding.
SRI has one main portfolio, the Long-Term Holdings, and an alternative, the Alternative Holdings-Permanent Hedges. Look first to the Long-Term Holdings for asset allocation in the markets covered here.
In the Alternative Holdings-Permanent Hedges Portfolio, readers can track permanent hedges and shorter-term recommendations. It also includes companies I’ve recommended for longer-term or more fundamental reasons, and they represent additional exposure to favored investment themes. For example, Lukoil provides extra exposure to a favored theme–Russia and energy.
On the left-hand side of the Web site’s main page, under Portfolio Performance, you can get a snapshot of the Portfolio’s return compared to other major indexes.
On the Portfolio page, you can click on the asterisk next to each holding to review the original commentary and recommendation. I plan to enhance the Portfolio table with extra features and welcome comments and suggestions.
Many new readers have also asked, “What do we do when the market drops substantially?”
Since SRI’s inception, I’ve been skillful and lucky enough to have booked profits before precipitous falls, in which case I recommended sitting still through the turmoil. I will also get word to you via a Flash Alert if events turn too quickly.
SRI is built around a set of core themes. I often revisit those themes or certain analyses through a link to a previous article or by reproducing relevant paragraphs. You can also read previous issues in the Archives to gain an understanding of the investment philosophy of the publication.
Or you can ignore my advice and try to find the next big hitter the Portfolio will produce. You may succeed, but be aware that I don’t play that game; “fast guns” are wasting their time with this publication, as well as Asia and the rest of the international markets as an asset class.