By Jason Simpkins
Associate Editor

A stalling U.S. economy has typically been a cause for a concern among Asian exporters, which have traditionally been over-reliant on the American consumer for business.  However, those concerns have been assuaged recently, as many exporters throughout the Pacific have found a significant demand for their goods in other markets.

Exports to the European Union from China, Korea, Japan, and Taiwan grew by 22.4% year-over-year in the first-quarter according to Goldman Sachs Group Inc. (GS). Exports from those four Asian nations to emerging markets, excluding China, have grown by 36.5% for two consecutive quarters now.

“The ability of Japanese exports – and those from around the region – to continue to grow despite stagnant demand from the US has been one of the most striking features of the past year,” Macquarie Bank economist Richard Jerram told the Financial Times. 

Exports to the United States from the four Asian export juggernauts grew 4.7% in the first-quarter, their slowest rate of growth since 2003, according to Goldman Sachs.

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Demand is even strong in smaller countries such as Singapore. After falling 2.6% in March – when shipments to the United States fell at the sharpest rate in more than six years – non-oil exports rose 1.6% in April from March, Reuters News Agency reported.

Non-oil exports in April rose 5.4% from a year earlier to $10.2 billion, according to trade agency International Enterprise Singapore. That compares with a 5.9% fall in March.  Singapore’s shipments to the United States fell at an annual rate of 16.9%, but exports to Europe and China climbed 16.9% and 19.2% respectively.

“Exports to the U.S. continue to be in the doldrums but the EU and China are still strong. Singapore has been able to decouple from the U.S. to some degree,” Joseph Tan, a strategist at Fortis NV told Reuters.

In South Korea, which relies on overseas sales for 40% of its gross domestic product, exports rose 27% in April, the fastest annual pace in more than three years. Lehman Bros. Holdings Inc. (LEH) has already raised its 2008 forecast for export growth in South Korea from 8.2% to 9.3%.

Vietnam plans to raise exports to Africa, the Middle East and south Asia to $2.3 billion this year, an increase of 33% from last year, the Vietnam News reported, citing an unnamed official at the Ministry of Industry and Trade.

“We have a lot of evidence to support the decoupling view,” Timothy Bond, Merrill Lynch & Co. Inc.’s (MER) chief Asia economist, told the AFP, referring to a view that Asian economies are moving away from dependence on the U.S. market, to a more diversified base.

According to Bond, the stronger euro, which makes Asian goods cheaper to European customers, is the main reason Asian exports to Europe have been growing 25%-28% annually.

“Europe has been the main driver of Asian exports over the past few years, not the [United States],” Bond said.
News and Related Story Links:

• AFP:
  Asia to ride out the US slowdown

• Reuters:
  Singapore exports unexpectedly up but outlook cloudy

• Vietnam:
  Vietnam Plans to Increase Africa, Mideast Exports, News Reports

• Money Morning:
  A Weak Dollar and Sluggish U.S. Economy Accelerate Toyota’s Retreat to Emerging Markets

Citing the global inflation epidemic as a key threat to growth, JPMorgan Chase & Co. (JPM) made double-digit cuts to its 2008 stock index forecasts for several major Asian economies.

While JPMorgan is still projecting growth for the Asian indices in question, analysts believe the increasingly restrictive political environment will put downward pressure on stocks as the governments attempt to curtail inflation.

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JPMorgan trimmed its target for Hang Seng China Enterprises Index by 16% to 18,500, India’s Sensitive Index was reduced by 18% to 22,500, Hong Kong’s Hang Seng Index was cut by 10% to 35,000 and the Philippine Stock Exchange Index was slashed by 28% to 3,400, several strategists wrote in a report.

Other Asian countries’ indices also saw their targets cut: South Korea’s Kospi by 14% to 1,970 and Indonesia’s Jakarta Composite Index by 12% to 2,800.

In February JPMorgan cut its target for Singapore’s Straits Times Index by 21% to 3,800. And in late March, it reduced its target for Australia’s S&P/ASX 200 Index by 16% to 5,900.

"Investors’ focus needs to move to increasing policy risk as governments manage a poorer growth-inflation balance," the report said, Bloomberg reported. "The downside risk is that higher inflation reduces domestic demand and investment, as disposable income and profit margins are squeezed."

But its important to remember that even with the lowered expectations, the Asian indices are expected to make strong gains for the year. For example, based on valuations mid-day Friday, China’s Hang Seng Enterprises Index stands to gain another 26% by year’s end according to JPMorgan’s projections. India’s Sensitive Index another 28%.

The report said that global inflation reached a nine-year high of 4.1% in the first quarter. And inflation in emerging economies is 3 percentage points above the average target ceiling.

And on Friday, India’s government released a fresh round of inflation statistics, saying that inflation rose 7.57% in the week ended April 19 from a year earlier. The new number means that India’s inflation accelerated at its fastest pace in more than three years.

Soaring food and commodities are contributing to worldwide inflation, and India has been acting sternly to curb it. The Reserve Bank of India upped its cash reserve ratio to a seven-year high, Bloomberg reported.

Index Turnaround

Still, the forecasts show two things: how deep inflation is cutting into the global markets, but also how emerging economies can withstand such severe economic conditions and post impressive gains.

Despite the reduced projections, Asian stocks may be soon poised for a turnaround. Global indices have been moving enthusiastically forward in the last few weeks on speculation that the worst of the credit drought is over.

The major culprits that dragged down Asian indices (especially China’s) are stock market linkages between the United States and foreign markets – meaning that currency devaluations and slowing foreign economies (such as China’s major trading partner, the United States) pinched the profits of some companies – but nowhere near enough to cause a downturn there.

The bottom line is that China is on track for 10% to 12% growth this year – and that’s after China’s government has taken steps to slow the country’s economy down. Other Asian countries such as India, Vietnam and the Philippines are following in near lockstep.

"Investors who abandon China now will live to regret their decision," Money Morning Investment Director Keith Fitz-Gerald said. "China will continue to grow for decades to come. And that’s after nearly 30 years of double-digit growth that country has already logged into the history books."

China Profit Plays

With many indices beat down significantly by the Asian bubble burst and global credit crisis, now may be a time for investors to get in while prices are significantly reduced from their 52-week highs.

However, economic underpinnings are still uncertain – both in Asian and U.S. markets. And only the strongest companies are best suited to grow during good times and bad.

A still-weak greenback will make brand-name imports [both products and services] even more popular in China. And rapidly growing consumer income will give China’s increasingly image conscious consumers the cash to buy them with.

We’ve been predicting that these two trends would converge for some time. That’s one reason why, all the way back in September, we said that brand-name companies such as MGM Mirage (MGM) were actually high-profit plays on China. And we still feel that way.

So the bottom line is that if controlling risk is key to your overall investment strategy, as you sift through China-oriented investment opportunities, look for companies that generate revenue and profit "because" of China including those that are based in more-highly regulated markets such as the United States and Europe.

Look, too, for companies with a solid dividend yield because the cold hard cash you receive can go a long way towards reducing your downside.

Consider the so-called "Global Titans," including PepsiCo Inc. (PEP), Diageo PLC (DEO), Yum! Brands Inc. (YUM), McDonald’s Corp. (MCD), The Coca-Cola Co. (KO), The Boeing Co. (BA), and a few others.

Every investor must have a China strategy these days.

And while choosing to sit on the sidelines is certainly a viable decision, longer term it’s probably just not a profitable one.

News and Related Story Links:

• Bloomberg:
  China, India, Asian 2008 Stock Index Targets Cut at JPMorgan

• Bloomberg:
  India Inflation Accelerates to Highest in 3 1/2 Years

• Money Morning:
  Don’t Let China’s Stock Market Slump "Decouple" You From its Massive Profit Potential

• Money Morning:
  By Giving up on China, Investors are Giving up on Profits

As the home to 34 of the world’s 50 least-developed countries, Africa is the poorest and least-developed continent on the planet. It’s 11.7 million square miles of desert and jungle, with little in between.

Africa is malnourished, politically impotent, overrun with disease, and teeming with warlords, so it’s no surprise the typical life expectancy is 20%-30% below the global average.

Despite such a daunting outlook, Africa will be the most hotly contested battleground for the two of the world’s most influential powers over the next 50-100 years. 

That’s because Africa has become a key economic priority for both India and China – the two Asian powerhouses in the midst of major financial and industrial reformations.

China and India have been home to two of the world’s fastest-growing economies over the past several years, and that momentum is expected to carry through the rest of this year, as well. India’s economy is expected to expand by as much as 9.5% in the current (2008/2009) fiscal year. And China’s economy already has expanded by 10.6% in the first quarter of 2008, despite complications stemming from the U.S. credit crunch, the Chinese New Year, and the worst ice storm the country had seen in decades. 
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In addition to booming economies, China and India have the world’s two largest populations. The combined population of China and India (Chindia) is approximately 2.4 billion people. And it won’t be long before those 2.4 billion people evolve into the largest consumer class the world has ever known, making Africa – with its vast resources and close proximity – an ideal trading partner.

As a leading exporter of gold, silver, cotton, cocoa, copper and aluminum ore, and oil, Africa is an invaluable ally to emerging economies that will require vast amounts of raw material to sustain growth.

The bottom line: China and India will be vying for Africa’s favor in the years ahead.

Of course, China already has a head start.

"The Chinese Are Everywhere"

In 2006, Beijing hosted the China-Africa Cooperation Forum – an event attended by more than 40 African heads of state.  At the forum, China unveiled $9 billion in preferential loans, export credits, and trade incentives – all part of a strategic plan to achieve a preferential status with key African nations.

The meeting was more than a mere publicity stunt to play up Beijing’s humanitarian efforts. It was a symbolic acknowledgment of growing cooperation between the regions.

Trade between Africa and China has grown 40% a year since 2001. In just seven years, trade volume grew from $4.5 billion to as much as $55 billion, meaning that China has emerged as Africa’s third-largest trading partner after the United States and France.

China also has invested tens of billions of dollars directly into African-infrastructure and social-development projects. Some examples:

• In Freetown, the capital of Sierra Leone, office blocks, military headquarters and a refurbished stadium are all the work of planners from Beijing.
• In Uganda, the new State House was built with Chinese money. 
• In the city of Rwanda, Chinese companies built 80% of all new roads.
• And in Nigeria, China’s Civil Engineering Construction Corp. is building an $8.3 billion railroad linking Lagos and Kano.

While in Zambia, an "economic partnership zone" that will attract $800 million in investment was promised by the Chinese president on a recent state visit. Even Zimbabwe’s international pariah, Robert Mugabe, has declared: "We have turned East, where the sun rises, and given our backs to the West" – perhaps grateful for Chinese assistance in cultivating crops on land seized from white farmers.

In short, as Granta magazine put it, "the Chinese are everywhere."

Chinese involvement also has received a slightly warmer welcome than efforts by Western nations. Where western powers have attempted to use aid and investment as bargaining chips to achieve certain political or social reforms, China employs a less-conditional "no-strings-attached" attitude that many African leaders find appealing.  

"With the Chinese, we don’t feel any interference in our traditions or politics or beliefs," said Awad al-Jaz, Sudan’s energy minister.

Most recently, China agreed to take on large-scale infrastructure projects in the Democratic Republic of Congo, in exchange for copper and cobalt reserves. To facilitate the exchange, Congolese and Chinese state-owned enterprises (SOEs) set up a joint venture known as Socomin. The mining company will invest $3 billion, mostly in new mining projects. The profits of Socomin will then be used to repay these mining investments, and also to find Chinese investment in other big infrastructure projects.

Under the agreement, Socomin will raise about ten million metric tons of copper to pay off $12 billion in total investments over a 15-year period.
And last year, the state-owned Industrial and Commercial Bank of China Ltd. took a 20% stake in South Africa’s Standard Bank Group Ltd. for $5.4 billion. Standard Bank is Africa’s largest lender, servicing 18 sub-Saharan countries. And now, China’s government will get a piece of every new loan, every ATM fee, every credit card taken from Standard Bank.

India Follows China’s Path Into Africa

With all China has achieved in the past few years, India is beginning to wake up to the potential benefits of a strong relationship with African nations, many of which are enjoying their fastest growth rates in 30 years.

The first-ever India-Africa summit concluded last week, having laid the groundwork for future cooperation between the regions.  The two-day summit – attended by eight heads of African states and delegations from 14 African countries – culminated with the signing of the Delhi Declaration and the Africa-India Framework for Cooperation, two documents designed to build political and financial synergy. The accords stressed cooperation in agriculture, food security, technology, trade, energy and education. 

At the summit, Indian Prime Minister Manmohan Singh announced duty-free access to Indian markets for the world’s 50 least-developed countries, 34 of which are located in Africa. Singh also said his nation would more than double India’s credit line to Africa, from $2.15 billion in 2003-2004 to $5.4 billion in 2008-2009, and boost grants and aid to the continent to $500 million in the next five to six years.

"It sounds like something Beijing did a few years ago," Philip Aves, an economist at South Africa’s Institute of International Affairs, told the Financial Times. "It’s a mini-China approach to dealing with Africa. It has all the same elements, except on a much smaller scale."

But Prime Minister Singh was careful to point out that, while China has clearly established economic and political inroads in the region, this is not a competition.

"We are not in any race or competition with China or any other country. The desire of India and Africa to work together is not new," Singh said. "We are willing to offer whatever help we can to build capabilities in Africa. We share a colonial past and have been partners for a long time."

Privately, however, policymakers acknowledge that India must close the gap between itself and China. And that will be a Herculean task. India’s trade with Africa soared from $967 million in 1991 to $30 billion in 2007 and 2008, but still lags Africa-China trade – estimated at $55 billion. African exports to India grew 14% between 1999 and 2004, but African exports to China jumped 48%.

While India clearly lags China significantly in terms of infrastructure, trade, and investment dealings with Africa, that doesn’t mean it’s "game over." In fact, India could well find opportunities to build on the Chinese developments already in place.

"Anyone who has lived in both India and China will agree that the Chinese have been far more successful at creating mass urban and cross-country infrastructure," said Dr. Aditya Dev Sood of the Center for Knowledge Societies. "On the other hand, just having quality infrastructure is not enough for Africa – the continent needs jobs, and that’s something Indian service sector companies can provide."

The surge in development has opened the door for Indian multinationals like Videocon Industries Ltd., Suzion Energy Ltd., and The Indian Hotels Company to move parts of their businesses to Africa, bringing jobs and business-development expertise with them. 

Tata Motors Ltd. (TTM) plans to make trucks and buses in South Africa. The company also anticipates the assembly of pickup trucks in Senegal.
"Africa is a key market for Tata Motors," Managing Director Ravi Kant said at the India-Africa Summit. "We are supplying trucks and buses for public transport and one opportunity could be for individual transport… Nano could fit in that market."

The company’s recently unveiled Nano is the world’s most affordable passenger car at $2,500.

Carving Up Africa’s Oil Fields

Regardless of the recent forays made into Africa by India and China, oil seems to be the principal interest for both parties. China, already the world’s third-largest user of oil, is expected to see its average annual demand grow 3.3% a year from 2010 to 2020. And the International Energy Agency says India will overtake the United States, Japan, and China as the world’s leading net importer of oil by 2025.

As competition intensifies, the oil fields of Nigeria, the Sudan, and Angola are where the world may see the first hostile flare-ups between China and India.
"India is in all the same countries as China, including Sudan [but] it’s just below the radar because its investments are so much smaller," Aves said.
Earlier this week, for instance, China and India both agreed to build oil refineries in Nigeria, rather than just buying crude from that country for export back to their home markets.

Three prominent Chinese companies operating in Nigeria – CNPC Ltd., Sinopec and CNOOC Ltd. (CEO) – "have together committed themselves to make available a refinery" in the southern delta region, Tony Chukwuemeke, head of Nigeria’s Department of Petroleum Resources, told the Associated Press.

"I cannot tell you its capacity but it’s in the neighborhood of 450,000 barrels per day," he said. "We are just beginning a discussion."

Nigeria has a similar cooperation agreement with India to establish another export-oriented refinery. Chukwuemeke said Indian oil and gas group ONGC, teamed with steel giant ArcelorMittal (MT), "have some oil blocks from Nigeria in the deep offshore and for that they have committed to build a refinery in Nigeria."

India currently imports 11% of its oil from Nigeria and is moving in on Angola and the Sudan. India recently completed a $200 million pipeline that links Khartoum and Port Sudan on the Red Sea.

Still, China became the biggest investor in the Sudan after commissioning the construction of a 900-mile oil pipeline expected to cost about $16 billion. Sudan is China’s fourth-largest provider of crude, sending 60% of its supply to the Asian nation. 

Another 14% of China’s oil imports come from Angola, where a $1.6 billion deal to develop a new field was signed last May. China also extended $4.5 billion in credit to Angola in the past four years according to the nation’s Finance Minister, Jose Pedro. A new line of credit worth $500 was negotiated with China in 2007.

Regardless of which country ends up with a bigger stake in the continent, Africa appears to be the biggest winner so far with two of the world’s fastest-growing economies competing to infuse the region with jobs, capital, and infrastructure.

Western countries may rail against Beijing’s business practices, but the fact is that Africa needs trade and – in contrast to Western capital – China’s cash arrives quickly and with no colonial hangover and no complex relationship of resentment.

News and Related Story Links:

• Center for Knowledge Societies:
  Emerging Economy Report

• BusinessWire:
  ‘The Tata-fication of Africa: Indian Corporations Will Drive Innovation and Investment in Africa’ Emerging Economy Report by CKS

• Business Daily:
  Africa: Is China the Greedy Tiger It’s Often Portrayed to Be?

• Associated Press:
  Nigeria says China, India to build its oil refineries

• Times Online:
  India takes on China over Africa’s riches

• Financial Times:
  India follows China’s path in Africa

• Money Morning:
  India Embraces Africa, Opens the Door to Competition with China

• Money Morning:
  Is China Annexing Africa?

• Money Morning:
  China Covets Crude

Developing Asian countries will churn out solid 7.6% growth this year, but the region is at risk from spiraling inflation and the global credit crisis, a new report from the Asian Development Bank (ADB) said.

"Asia will not be immune to the global slowdown, neither will it be hostage to it. It remains tied to global activity through traditional trade channels, and increasingly, through its closer integration in international financial markets," says ADB Chief Economist Ifzal Ali.

Despite government controls, the ADB predicts that inflation will spike to 5.1% in 2008 – possibly hitting a decade-long high – before cooling to 4.6% in 2009. Prices will be highest in central Asia, where inflation will remain in the double digits. China is the country most at risk, as inflation is running at an 11-year high. But economic growth in neighboring countries, such as Vietnam, is also at risk.

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The report urges policymakers to tackle the problem at its root.

"For some economies, this may mean a more flexible exchange rate, while in others it may need a scrutiny of fiscal spending and priorities and, in some cases, targeted measures may be warranted to ease supply pressures that are piling on to cost pressures," the report said. 

In an interview with Reuters, Ali took on a stronger tone. 

"If this genie gets out of the bottle and inflation becomes ingrained, it could bring the growth process to a grinding halt," Ali said.

Decelerating Growth

The ADB said that growth in India and China is expected to moderate as their governments tighten policies to control inflation and accommodate "blistering" demand.

India’s economy is expected to expand by 8% and China’s is expected to grow 10%. The slowdowns in the United States, Europe and Japan will hurt China more because it’s more reliant on foreign trade.

East Asia is expected to slow from 9.3% in 2007 to 8.1% in 2008. Southeast Asia will slow from 6.5% last year to 5.7% – among the region’s countries, only Thailand is expected to post higher growth.

Growth in Central Asia is expected to decelerate sharply from double digits last year to 7.5% in 2008 because of weaker expansion in the region’s largest economy, Kazakhstan.

In the Pacific Islands – from Papua New Guinea to Fiji – growth is expected to rebound in 2008.

However, all of the developing Asian countries, collectively and individually, face the task of integrating into the global economy, sharing growth, creating conducive business and investment climates and maintaining macroeconomic stability, Ali said.

"Looking beyond the immediate bumps in the road, Asia’s long-term growth prospects will depend on how successfully countries tackle" those structural constraints facing them, says Mr. Ali.

Headquartered in Manila and financed by 67 countries, the ADB fights poverty with low-interest loans, grants, private sector investments and research about the region that is home to two-thirds of the world’s poor.

News and Related Story Links:

• Asian Development Bank:
  Developing Asia to Post Solid Growth in 2008 Even as Major Industrial Economies Slow Down, Says ADB

• Reuters:
  ADB sees Asia growth slowing, warns on inflation

Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

SINGAPORE – Any doubts I had about how the recent U.S. economic malaise was affecting the Asian region were promptly dispelled when I rolled off my 23-hour flight into Singapore`s Changi Airport.

At 11:50 p.m., it was every bit as busy as Frankfurt or any other major international airport in the middle of the day.

As I looked around while I waited to clear customs – a process that took nearly two hours because of heightened security – I was struck [as I am on every trip to the Far East and Southeast Asia] by just what a melting pot this is: There’s a simmering brew of Malaysian, Chinese, Indian and Western cultures here, and even late at night the energy is palpable. Right away, one can sense the uniqueness that is Singapore.

That’s exactly why I got started so early today – jet lag be damned!

After a four-hour sleep that resembled a nap more than it did any kind of real rest, I headed out for a stroll around Singapore’s core and the historic Orchard Road area. My goal, as it usually is when I travel, was to observe the city’s transformation as it wakes up to face a new day. Not only does this help me get grounded whenever I arrive in a new city, but when it comes to investments, there are few better ways of gauging a city’s economic vibrancy.

As usual, I wasn’t disappointed.

Singapore is running full throttle. The country has become Asia’s boomtown. Not only is it situated right at the nexus of centuries-old trading routes; the government has done a very effective job promoting free trade. Indeed, Singapore has enacted a bevy of regulations that are designed to encourage banking and financial development, including tax incentives, currency exchange and infrastructure development.

From the moment I hit the streets, I was overwhelmed by construction activity. There were thousands of migrant workers from Malaysia flowing into the city. And the whining and metallic crashes from the ubiquitous construction equipment melded into a din that only added to the sensory overload I was experiencing.

The old is being replaced by the new here, and old Singapore is being re-made into a cosmopolitan city on par with any metropolis in Europe or in the United States.

While it was once lined with pepper plantations where evening strolls were interrupted by the occasional tiger mauling, Orchard Road is now a palace of capitalism. In fact, it’s one of the world’s most concentrated shopping areas and within a few hours, it was filled with people. There were young executives, fashionistas in impossibly tight jeans and, of course, people like me, just taking it all in.

And everywhere I looked there were hints of the great economic boom we’re all following. Take Citigroup Inc. (C), for instance. Even though it’s under tremendous pressure in the U.S. market, Citi is creating a spectacular presence here when it comes to personal wealth management. So are China’s banks. Both had lots of signage and customers at their Orchard Road locations.

Then there were the cars. There are lots of them for such a seemingly small city, and most were fuel-efficient models. Singapore has no resources and needs to import nearly everything it consumes, so there is an emphasis on conservation. Not surprisingly, public transportation is cheap and very well run. It better be, given that there are some $90,000 Hyundais here.

With all that’s going on, it’s no wonder that legendary investor Jim Rogers chose to move here.

Speaking of whom, Rogers is the reason I’ve flown all the way to this part of the world. He and I will be sitting down together to talk global investing – and I can’t wait to share what I learn with you in the weeks ahead.

News and Related Story Links:

• Web site: Singapore’s Changi Airport.
• Web site: Singapore’s Orchard Road Area.

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

Following a spectacular run up last year, many investors are wondering what’s next in Asia.

We are, too.

The steady stream of news so far this year has only seemed to make things worse. And the current market volatility, which began with last summer’s U.S. credit crisis, seems set to derail U.S. economic growth. Throw higher oil prices, inflationary concerns and a dollar that’s turning out to be more like Rodney Dangerfield than Sean Connery into the mix, and you’ve got what seems to be a real mess.

Fortunately, though, if you take a look behind the headlines, Asian markets are holding up just fine and, although they are likely to continue to be volatile during 2008 [along with the rest of the world's markets], they’re full of promise for decades to come.

Much of that promise is obviously due to the region’s growth. But increasingly, it’s also a function of the combined strength of the area…as it relates to China.

A Repeat Performance with a Different Star

If this sounds familiar, it should. For the 50 years immediately following World War II, the region centered on Japan. And investors who went along for the ride went straight to the top on the back of a Nikkei exchange and regional trading alliances that knew no downside…until the late 1990s when the bottom dropped out.

As usual, those who were focused on the short-term got badly burned and have yet to recover, with the Nikkei still trading at merely a quarter of where it was at its peak. Alternatively, safety-focused investors who made intelligent choices did well.

Today, Asia faces a similar situation only this time with China at the helm. And many investors are sitting at a similar cross roads. Like Japan before it, China has experienced a whopping run-up, which makes it all the more tempting for people who missed that initial surge. But China is a riskier investment than ever before.

This combination makes us suspect that now is the time to get serious.

Balancing Risk and Returns

There’s no question the region will continue to grow for decades. Yet, in contrast to the record growth of the past few years, which was driven largely by speculative liquidity, the longer-term growth in the region will increasingly be China-centric.

To cash in, investors will have to do two things:

• Make smarter, "safety-first" choices that diversify – and don’t concentrate – risk.
• And limit investment choices to companies that are poised to capitalize on international exposure in the region.

Here’s why.

Large-cap companies, particularly those with global operations, can build business within the region – and with far less risk than those local companies engaged exclusively in a domestic-focused business. This helps ensure stability. Plus, many of these companies pay dividends, which are vitally important at the moment, because they help offset the elevated risks we take when we invest in the China region.

Further, by concentrating on the so-called "Global Titans" doing business in the region, we mitigate a "split-personality problem" that eventually will end up clobbering most investors who don’t adopt the safety-first philosophy we advocate.

I’ve been involved with Asia investments for more than two decades. And I’ve seen it time and again. The reality is that 99% of all investors seeking profits in the area don’t understand that there are differing investment views when it comes to local money and international money.

For instance, in Asia, managers tend to focus almost exclusively on top-line [revenue] growth, whereas Western managers and investors all tend to focus on bottom-line profitability. Obviously, those two objectives don’t always align. And that creates a potential mismatch that can wipe out unsuspecting investors who are out seeking a "quick buck" profit.

Profit Plays for a Potential Slowdown

Bigger-company shares – like those we prefer – will keep their edge longer, even if there is a China-induced slowdown during 2008. We think such a slowdown is unlikely. But given the high-valuations that remain after last year’s big run-up, it’s a possibility, nonetheless.

With regard to favorite choices that meet our regional criteria, some at the moment include Zurich-based ABB Ltd. (ABB), which provides electrical power infrastructure in the region. China Medical Technologies Inc. (CMED) and Huaneng Power International, Inc. (HNP) fit the "Global Titans" model, too, but in reverse. Both firms focus on China, but also have important international operations with great potential outside of Mainland China.

If a broader holding is more your speed, without a doubt the best in class in our opinion is the China Region Opportunity Fund (USCOX), a mutual fund run by San Antonio-based U.S. Global Investors Inc. (GROW). And U.S. Global, itself, is not a bad play on international growth. It manages some of the best emerging-market funds, and natural-resources funds, in the business. As global growth fuels global investments – and it will – U.S. global will see more money pour into its funds, boosting the management fees it collects, as well as its profits and stock price.

The bottom line on Asia in 2008 is that we expect global volatility to sweep through the region, even though it is awash with liquidity. We see China leading the pack for decades to come, just as Japan did a half century ago. Yet, in the longer-term, we don’t see a direct correlation between regional economic growth and equity valuations. And that suggests that a safety-first approach – with a focus on large-cap companies that are globally diversified – is the strategy to follow if you want to maximize your profits from Asia.

Money Morning’s "Outlook 2008" series last covered Agricultural Commodities.  Next up: Biotechnology.

U.S. telecom giant AT&T Inc. (T), looking to expand its network into the fast-growing markets of the Middle East and Southeast Asia, may buy an unspecified stake in the wireless unit of Telekom Malaysia Berhad (PINK: MYTEF) to help do so.

The potential move by AT&T once again illustrates the so-called "Global Titans" investment strategy that Money Morning experts have chronicled time and again: By investing in U.S.-based companies that are aggressively pursuing growth in the fastest-growing overseas markets, U.S. investors can profit from that foreign-market growth while still enjoying the relative safety provided by the stricter regulatory protections afforded by the U.S. financial markets.

Potential Deal Drivers

According to reports by both Forbes.com and The Malaysian Reserve, AT&T wants to buy into TM International SDN BHD, the mobile unit of the state-run Telekom Malaysia. The Malaysian business daily newspaper and the noted U.S. business magazine said that TM International has been "keen" to break into the fast-growing Vietnam market, and has been hunting for a strategic partner that can help make that happen.

AT&T – the largest U.S. phone company – is a front-runner, thanks to its deep pockets, and an existing presence in Vietnam. Telekom Malaysia would neither confirm nor deny the report, which was based on unnamed sources and first appeared in the Malaysian daily on Wednesday.

"Telekom Malaysia wishes to inform that it does not comment on any news that is speculative in nature," the telecommunications firm said in a statement.

Saudi Arabia’s second-largest wireless carrier, Etihad Etisalat Co. [better-known as Mobily], is expected to be another suitor for the mobile business of Telekom Malaysia; in December, Mobily agreed to purchase a stake in TM’s Indonesian unit.

Mobily’s main shareholder is Etisalat of the United Arab Emirates, which owns a 35% stake. The Dubai-based Etisalat has been a highly acquisitive company.

If AT&T pulls off the deal, it would give the U.S. telecommunications firm an entrée into some of Asia’s best regional markets, including Sri Lanka, Bangladesh, Pakistan, Indonesia, Singapore, Thailand and Cambodia, Forbes.com reported.

The Take on Telekom Malaysia

It was back in September that Telekom Malaysia unveiled plans to spin off its wireless business into the separately listed TM International – a business unit valued at $8.4 billion. The plan included its domestic Celcom BHD unit, and operations in nine other countries. The deal – termed a "de-merger" – was supposed to facilitate the sale of the wireless unit to strategic foreign investors.

Several foreign wireless phone firms have reportedly approached the Malaysian parent firm since the de-merger deal was unveiled. Last November, Telekom Malaysia denied a report that Great Britain’s Vodafone Group PLC (VOD) had agreed to buy a 25% stake in TM International.

As currently planned, TM International shares will trade on the Bursa Malaysia BHD (PINK: BSAMF) – the main board of the exchange in Kuala Lumpur – while the remaining businesses, including the fixed-line voice, data and broadband services, will remain listed as Telekom Malaysia.

Telekom Malaysia expects the spin-off to be finalized by the conclusion of the second quarter.

News and Related Story Links:

• Forbes.com:
  AT&T Reportedly Interested In Telekom Malaysia Mobile Unit.

• Money Morning News:
  Emirates Telecommunication Eyes Controlling Stake in Oman Telecommunications.

• Money Morning Investment Analysis:
  Global Memory Chip Leader SanDisk the Latest Heavyweight to Pursue Vietnam’s Promise.

• Money Morning Investment Analysis:
  Vietnam Growing at Exceptional Rate… American Investors Looking for Good Entry Point.

• Forbes.com:
  Telekom Malaysia up 10% On Mobile Spin-Off Plan.

The majority of Asian stock markets made monster gains for the year in 2007, despite volatile dips in the first and fourth quarters. Analysts are expecting Asian stocks to boom again in 2008, following a period of continued declines early in the first quarter of the New Year.

After dropping 9% on one day in February, which for the first time triggered a global sell-off in other countries, Chinese shares rebounded to rise 93% in 2007.

Other major bourses performed well too – Indian shares gained 47% for the year, South Korea stocks rose almost 32%, Singapore was up 17%, and South Pacific neighbor Australia was up 12%, according to the Associated Press. Among the smaller Asian markets, Indonesian shares jumped 52%, Malaysia’s market rose 32%, Thailand shares went up 26% and the Philippines’ market moved 21%.

In a field of winners, there were some losers, however. Japan’s Nikkei 225 index contracted by 11% and New Zealand’s NZW-50 index tightened by 0.3%.

Comparatively, the blue-chip Dow Jones Industrial Average Index rose 6.77%, the tech-laden NASDAQ Composite Index gained 7.81% and the broader S&P 500 Index rose a meager 3.45%. Each of those year-end gains came after volatile swings throughout the year. 

Asian Gains Give Decoupling Theory Weight

Many of these Asian countries shared some the pain of the U.S. mortgage meltdown. And the devalued dollar reduced prices of exported U.S. products, weakening domestic sales overseas.  But the majority of countries posted record gains, even as the U.S. markets faltered.

"More will be revealed after one or two months of data on the U.S. side to see what’s the state of the U.S. economy, especially the consumer spending," Song Seng Wun, chief executive of CIMB-GK Research Pte. Ltd. in Singapore, told the Associated Press. "If [the U.S. economy] can hold, then we should be reasonably intact."

The continued gains of the Asia markets in 2007, while the U.S. market lagged, gives more weight to decoupling theory – the process where one economic superpower becomes less and less dependent on another.

"In the years ahead, the world will increasingly revolve around consumers from China, Eastern Europe and even the Middle East. This will create a bold new world when it comes to profit potential, particularly when you consider just how much weaker the dollar could get even from the historically low levels that it’s trading at right now," said Keith Fitz-Gerald, Money Morning’s Investment Director.

News and Related Story Links:

• Associated Press:
  Asian Markets Strong in 2007

• Associated Press:
  Rollercoaster Asian stocks set to rise in 2008: Analysts

• Money Morning:
  The Three Ways to Profit From a Messy Market

It is estimated that India needs to invest $500 billion over the next five years to keep its economy chugging along at its current 9% rate. In fact, India could be generating another couple percentage points worth of growth if the country’s roads and ports weren’t such a bottleneck and could handle more traffic. 

"We regard infrastructure as a critical constraint to growth," Montek Singh Ahluwalia, a key economic advisor and deputy chairman of India’s Planning Commission, said in a Tuesday speech before the World Economic Forum’s India summit, quoted by Bloomberg. "Investment into infrastructure now is not exactly a trickle, but a stream. It needs to become a flow."

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Infrastructure is the framework that keeps business moving. Everything we as Americans often take for granted – electricity, phone lines, highways, trains, trucks – needs to be built and maintained to sustain India’s economic growth. Emerging markets like India have been experiencing record economic growth and now have the cash reserves needed to invest in renovating existing, over-burdened infrastructure on top of developing new projects.

And emerging markets aren’t the only ones who need to invest in infrastructure. Even the United States needs $1.6 trillion in infrastructure investment, especially if more disasters like the Minnesota bridge collapse are to be avoided, according to the American Society of Civil Engineers.

Infrastructure demand is huge, even at a time when other industries have found corporate profits shrinking. These infrastructure-focused companies are posting strong results: 

• Switzerland-based ABB Ltd. (NYSE:ABB) is up 62% year to date and beat its third-quarter targets by a wide margin. ABB, an engineering firm specializing in power generation infrastructure, is benefiting from new infrastructure projects in China and India as well as replacement of aging infrastructure in Europe and the United States.

• Hong Kong-based China Merchants Holdings (International) Co. (HKG:0144) announced in its 2007 interim report a 26.1% year-over-year increase in profits that amounted to HK$1,520 million ($195 million). More than 70% of those profits derived from its port-related activities.

• U.S.-based Harsco Corporation (NYSE:HSC) is up 53% year-to-date, and last year it posted revenues of more than $3 billion. The firm is a leading provider of diversified infrastructure services worldwide.

• France-based BOUYGUES (EPA:EN), the second-largest construction company in the world, is up 25% year to date. It also just announced third-quarter profit gains of 27% on the strength of home and road construction projects in its home country. 

News and Related Story Links:

• Bloomberg:
  India Must Step Up Infrastructure Spend for Growth

• Reuters:
  Clinton proposes $10 billion bridge repair plan

• Money Morning:
  Snapshot From India: Advice on Stocks, the Rupee, High Tech and Real Estate

General Electric plans to build two power plants in Turkmenistan in an effort to help the desert nation develop solar-power facilities, Reuters reported.

The agreement was reached after talks with GE officials and Turkmen president Kurbanguly Berdymukhamedov last week in the nation’s capital, Ashgabat. 

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Despite his country’s status as Central Asia’s largest natural gas exporter, president Berdymukhamedov said Turkmenistan needs to develop alternative energy sources.

"It is incredible, but in Europe, where there are so few sunny days, they are actively working on producing solar power," Berdymukhamedov told Reuters. Meanwhile, Turkmenistan gets about 360 sunny days a year, he added.

The deal marks a huge policy leap for Turkmenistan, which has long been politically and economically isolated from Western countries and companies. Such reclusive politics were the signature of Berdymukhamedov’s predecessor, Saparmurat Niyazov, whose dictatorship ended last December after a 21-year reign.

And since Berdymukhamedov’s February election, foreign investors have been paying attention to the resource-rich country north of Iran and Afghanistan.

News and Related Story Links:

• Reuters:
  GE to build two power plants in Turkmenistan

• Wikipedia:
  Turkmenistan