Here is something that investors can take to their “to-big-too-fail†banks: Authorities in China will never allow a full-blown credit crisis to decimate the world’s 2nd largest economy. Disappointing manufacturing data, a falling yuan and the country’s first junk bond default have all contributed to perceived investors risks. However, Chinese government officials have learned from the sub-prime disaster in the U.S. (2008) as well as the sovereign debt catastrophe in Europe (2011). They will provide stimulus as necessary.
I have been wrong about China turning a corner before. In early January commentary describing country ETFs that would benefit from capital shifting abroad, I gave the highest accolades to investors MSCI New Zealand (ENZL), iShares MSCI Netherlands (EWN) and investors S&P China (GXC). Both ENZL and EWN performed admirably, while any exposure to China proved detrimental in the first quarter.
Keep in mind, corporate earnings in the U.S. are decelerating; spending cuts and investorscannot prop up profits indefinitely. Meanwhile, China’s ability to stimulate its economy should provide the requisite stability for investors to consider countries that will benefit from the bottoming out of extreme China pessimism. In other words, you will probably need to broaden your horizons even if you choose not to invest in China directly.
Here are 3 Asian investors that should benefit from attractive fundamentals and increasingly improving technicals:
1. iShares investors South Korea (EWY). After three years of extraordinary volatility and complete futility, what makes South Korea worthy of consideration today? For starters, EWY trades at roughly 9x present year earnings. Not only is that a 20% discount to Asia at large, it is a bonafide steal when compared with U.S. markets. Skirmishes with North Korea notwithstanding, EWY’s 33% information technology weighting is desirable for those that wish to overweight the sector. (Am I the only one that believes Samsung is one of the most innovative companies on the planet right now?)
