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Mon, 26 Jul 2010

MW/Five places to invest before you retire

While the start of this year was all about the misery of the PIIGS, the rest of the year is likely to focus on the mastery of the STINC.

That would be Singapore, Thailand, Turkey, Indonesia and Chile, five under-appreciated corners of the earth unsullied by over-spending, over-confidence and over-exposure.
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These five countries have been doing all the little things that add up to one big year -- and probably a big decade to follow. Each are nascent export powerhouses that can hold their own in any conversation about places where businesses and companies are just getting it done, without glamour or bright lights.

It's amazing what can happen in countries that don't borrow their way into oblivion, and focus on the important task of creating value through hard work, demographic growth, fiscal restraint and infrastructure investment. These are elements that major countries like the United States and China once cherished, but were lost in their breakneck rush toward growth at all costs.

The STINC countries are not a fad, and suffered their own stress tests years ago following the Asian currency crisis and Latin American bond scare. Their companies will be in your portfolio 10 years from now when they're really big and this is an old story, so you might as well start now when they're medium-sized or even small and participate in their growth.

To make it easy, their exchange-traded funds are iShares Singapore /quotes/comstock/13*!ews/quotes/nls/ews (EWS 12.09, +0.06, +0.50%) , iShares Turkey /quotes/comstock/13*!tur/quotes/nls/tur (TUR 60.77, -0.24, -0.39%) , iShares Thailand /quotes/comstock/13*!thd/quotes/nls/thd (THD 49.52, +0.58, +1.19%) , Market Vectors Indonesia /quotes/comstock/13*!idx/quotes/nls/idx (IDX 77.02, -0.09, -0.12%) and iShares Chile /quotes/comstock/13*!ech/quotes/nls/ech (ECH 63.10, +0.50, +0.80%) . In this article, I'll discuss the first three countries:
1. Turkey

Let's start with Turkey, which is a fascinating case study that shows how small, reform-minded governments can grow while the rest of the world struggles. According to analysts at Capital Economics in London, Turkey's ''near-term outlook is the brightest in emerging Europe."

CapEcon analysts expect Turkey's economy to grow by 6.5% this year, 4% in 2011, and 4.5% in 2012. While that's not exactly on par with China at 8%-plus, the secular Islamic country is doing it without central planning or a bloated banking system.

Growth is being driven by three factors. First is a robust bank sector with expanding loan portfolios that are making credit easy for good businesses to acquire. Compare this to the clampdown being suffered in places like Greece and Spain as financial institutions try to work off bad loans.

Second, Turkish exporters are enjoying great success thanks to a devalued currency and a competitive economy. Countries like Greece, which use the euro, don't enjoy as much flexibility in currency rates. And third, Turkey enjoys a broad export base. It's not dependent on Western Europe or its own middle-class for sales. In fact, the country sends only 45% of its exports to Europe while it sends 20% to the fast-growing Middle East. Turkish construction companies are among the most active and respected throughout the oil-producing regions of the Persian Gulf.
2. Singapore

Now turn your attention to Singapore. Finance officials of the island nation announced last week that their economy had expanded at a record 18.1% in the first half of the year -- stark evidence that South Asia has managed to shrug off Europe's sovereign debt crisis and the muddle in the U.S. economy.

Singapore's gross domestic product expanded at a 26% annual pace in the second quarter from the previous three months. Growth in the first half was the fastest pace since records began in 1975, prompting the government to predict GDP will rise as much as 15% in 2010. Take that, you slowpokes in Shanghai!

According to Bloomberg, tourists are showing up in Singapore in record numbers, companies have increased hiring and vessels are leaving the city's ports carrying more cargo. "Singapore will be among the fastest-growing countries not just in Asia, but the world, this year,'' Song Seng-Wun, a regional economist at CIMB Research, told a Bloomberg reporter.

Two casinos run by Genting and Las Vegas Sands Corp. /quotes/comstock/13*!lvs/quotes/nls/lvs (LVS 25.54, +0.47, +1.87%) opened in February and April this year. The casinos include your standard slot machines, baccarat tables and roulette wheels, but probably the most impressive is an amazing Skypark atop one of its massive hotel towers, which includes an infinity pool 40 stories above the city.

Researchers at Capital Economics say that manufacturing has led Singapore's growth after leaders took advantage of low construction and materials costs during the 2008 slump to double capacity in the pharmaceuticals and electronics industries. Construction output is also being lifted by new residential and commercial projects on the edges of the island.

Of course, the pace of expansion will inevitably drop back in the second half of 2010 to a more sustainable pace in the low single digits, but even that will be remarkable. No wonder Singapore owns that world's third-largest sovereign wealth fund, and has been reportedly picking up prize properties in countries like the United States where prices are still soft.
3. Thailand

Now cue Thailand. In the news for its attempted coup attempt earlier this year, Bangkok has been the center of a remarkable financial comeback. It was crushed in the Asian currency crisis of 1998, and yet a dozen years later has come back much stronger. Its exports have risen this year the most in two decades, eclipsing a record set before the global financial crisis.

Exports rose a stunning 46.3% in June from the month a year ago -- the fastest pace since at least the early 1990s. Most economists were expecting a gain of 34.5%. Auto makers Ford and General Motors have been contributing to the success, announcing plans to expand production facilities in recent months.

Thammarat Kittisiripat, an economist at TISCO Securities in Bangkok told Bloomberg that he expects more of the same over the rest of the year, adding, ''We don't see significant impact from the slowdown in Europe yet.''

The Bank of Thailand raised its benchmark interest rate to 1.5% last week, stating that it expects growth in 2010 to run higher than 5.8%. The International Monetary Fund likewise has raised its forecast for Thai growth this year to 8%. That has made the country a major consumer of steel, iron and energy even though it has a trade surplus in the first half of the year of $2.3 billion.

Sales to the United States and Europe were up 37% in June over the year-ago-month, and sales to China were up 26%. How is this possible? Well, a lot of European, U.S. and Japanese companies are moving factories to Thailand from China to avoid labor strikes, higher prices, corruption and other problems they've encountered there. The Yomiyuri Shimbun reported that the annual salary for a Chinese Honda worker can run as high as $4,500 to $5,500 in China; wages are about one-third lower in Thailand.

Mitsubishi Motors said earlier this month that it would set up its third factory in Thailand with an initial investment of $464 million to build a new global small car. Other Japanese automakers are already in Thailand to take advantage of low prices and a good export infrastructure, including ports and rails. Toyota has three assembly plants in Thailand, making 550,000 cars a year, and anticipates adding production in 2013 -- making it the company's export base for all of Asia and the Middle East.

Political risks are not being ignored, as the country's capital was under siege earlier this year amid a protest. But the incident was not uncommon in Thailand's rough and tumble history and the resolution was considered positive.

More STINC next time, when I'll outline the case for Indonesia and Chile. And in further reports, I'll talk about individual companies and look into what makes them, um, not smell as bad as many of their U.S. and European counterparts.

Jon Markman is a money manager and investment adviser in Seattle. Of stocks and funds mentioned in this column, he owns EWS, TUR, THD and ECH. For more ideas like these, try a two-week trial to Markman's newsletter, Strategic Advantage , published in partnership with MarketWatch.