ATHENS, Greece–Taiwan is poised to enjoy the view its ascent in the global political and economic scene has made possible.

Ma Ying-jeou, the leader of the pro-China Kuomintang (KMT) party, was elected president of Taiwan this past weekend. The KMT received almost 60 percent of the vote, a clear indication that the people of Taiwan are ready to end the hostility with China.

I discussed this transformation two months ago (see Silk, 16 January 2008, A Billion Here, A Billion There):

Taiwan isn’t in position to survive economically without China’s assistance. This reality is just now being recognized, and the political parties are expected to act accordingly. As in South Korea, economic development is taking precedent over extreme nationalistic policies.

An eventual understanding between Taiwan and the mainland–Beijing has indicated its willingness to talk to a responsible government–will help Taiwan’s economic development. Increased foreign direct investment (FDI) will flow to the island, just as China did with Hong Kong 20 years ago.

In anticipation of the change, I also recommended gaining exposure to Taiwan through iShares MSCI Taiwan Index Fund (NYSE: EWT) as a play on a potential new beginning for the Taiwan economy. Since then, the recommendation is up around 17 percent.

The president-elect has a clear mandate to guarantee that Taiwan isn’t left behind, ensuring that its economy opens up to the mainland’s money because people are no longer willing to tolerate a slow-growing economy.

It will take time for the two sides to find the common ground that will allow greater economic unity with minimal political problems. People voted initially for economic development and better relations because the eight previous years were essentially lost in empty political rhetoric with no action.    

If you’d like to take some profits off the table, you can do so now. However, I do recommend staying with the trade, at least with the initial position. Remember to allocate in the context of the Fresh Money Buys. iShares iShares MSCI Taiwan Index Fund remains a buy.

Investors are confused. It’s almost impossible to forecast the market over the short term (i.e., three to six months). Although always a sacker’s game, the avalanche of negative news isn’t making it any easier.

At the same time, the world markets are trying to stage a rally; all technical and sentiment indicators are pointing to one. It will be interesting to see how the market turmoil plays out and if a rally does take place. One more hit to the financial system would take it even faster toward the abyss, with earnings weakness and deleveraging leading the way.

Asia and the rest of the world are affected as the US desperately tries to save its financial system. The biggest problem is that investors watch as the global financial leader slowly gives up that role. Domestic problems are so dramatic that providing global leadership has become a mere afterthought. If the story unfolds forthright, we’ll witness a faster phase of the ongoing change in the structure of the global economy.

Silk readers shouldn’t be surprised by such a change because this is the main premise upon which this advisory’s investment approach is based. It will be difficult to navigate these rough waters, but investors who have the general long-term direction will be the most successful.

I’ll also reiterate that bear market or not, this year’s action is giving a great opportunity for investors to buy into the second leg of one of the greatest bull markets of our time, Asia.

China Mobile (Hong Kong: 941, NYSE: CHL)–one of the largest mobile service providers in the world with 369 million subscribers–reported strong yearly results with revenue amounting to USD50.6 billion, up 20.9 percent year-over-year, and net profit totaling USD12.4 billion, up 31.9 percent year-over-year. At the end of 2007, the company had a net cash position of USD22 billion, and its total debt to equity was 9 percent.

China Mobile remains a core holding of the Silk Portfolio given its strong subscriber growth (7 million in the month of January) and the big opportunity for growth in rural areas where the government has been instrumental in increasing the standard of living. Buy China Mobile.

Long-term favorite Hengan International (Hong Kong: 1044, OTC: HEGIF) recently released its 2007 annual results, with sales and earnings reaching USD730 million and USD129 million for a growth of 38 percent and 44 percent, respectively.

The results took investors and analysts by surprise as material cost worries dampened sentiment on the stock. Specifically, investors worried that higher wood pulp prices would be a drag to the company’s operations. But Hengan’s management has been able raise prices, passing higher costs onto the consumer.

Established in 1985, Hengan is the largest sanitary napkin manufacturer and the second-largest disposable baby diaper manufacturer in China; it’s also a leading producer of high-end tissues. Overall, it’s the largest local disposable paper hygiene product (DPHP) player in China. The diaper division contributes the strongest growth, with revenues up 62 percent, while napkins are the largest gross profit contributor at 49 percent. Hengan International remains a buy.

Bank of China Hong Kong (Hong Kong: 2388, OTC: BHKLY, BoCHK) reported solid results. Loans and deposits rose higher at 19 percent and 14 percent, respectively. Profits grew by 31 percent on a yearly basis, with loans in the mainland showing profitability up by 40 percent.

BoCHK is the second largest bank in Hong Kong in terms of deposits (18 percent) and loans (15 percent). The bank offers good exposure to the growing Hong Kong retail real estate market and has a base of around 2.5 million retail customers (around 40 percent of Hong Kong’s population) as well as 234,000 corporate accounts. In China, BoCHK operates 14 branches and can make use of parent Bank of China’s 13,000 branches to serve the rising consumer demand for cross-border banking services. Offering a solid and sustainable dividend yield of 4 percent, Bank of China Hong Kong is a buy.

China Infrastructure Machinery (Hong Kong: 3339, OTC: CIMHF, CIM) reported disappointing 2007 results as net income grew by only 1 percent year-over-year to USD90 million, and margins fell by 3 points to 22.4 percent. CIM’s numbers were hurt because of higher raw material prices and selling expenses. On the positive side, revenue growth remained strong at 43 percent, reaching USD852 billion as wheel loader sales increased by more than 40 percent year-over-year.

CIM–the second-largest loader producer in China–has performed poorly since I added it to the portfolio at the end of February. Despite its poor performance of late, China’s infrastructure boom is still underway and the company’s growth potential remains intact. See Silk, 27 February 2008, A Year of Consolidation. Consequently, the recent price weakness offers an opportunity to establish a position at favorable valuations. Buy China Infrastructure Machinery.

Russian oil companies have been at a disadvantage versus their peers for years because the relatively high mineral production tax hurt their performance. But now the finance ministry is proposing a tax cut of USD4 billion for Russian oil companies starting next year.

The actual number isn’t that important. Rather, the importance lies with the government’s move toward tax reforms for one of its major industries. Because energy prices are staying higher for longer, a change in the Russian tax regime will allow Russian companies to trade at their true potential, which is much higher than current prices. Buy my favorites: OAO Gazprom (OTC: OGZPY) and Lukoil (OTC: LUKOY).

Nothing has changed since the last Flash Alert (see Silk, 17 March 2008, Flash Alert: Lower Stop (Again) on China Life Insurance). Stay with the hedge trades.

The investment process is constant. So 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, in order (for both countries and sectors). Consult the portfolios on the left-hand side of your screen for details.

• Russia (energy, telecommunications)
• Hong Kong (banking, real estate, infrastructure)
• India (pharmaceuticals)
• Philippines (telecommunications, real estate)
• South Korea (banking)
• China (consumer, telecommunications, machinery, coal, e-commerce, oil)
• Taiwan (ETF)
• Singapore (banking, telecommunications, industrial)
• Japan (banking, industrials)
• Cambodia (casino/hotels)
• Macau (casino/hotels)
• Europe (communications equipment)