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.

Hong Kong’s Hang Seng Index had its biggest daily loss since the day after the 9/11 terrorist attacks, and has now lost 23% from its Oct. 30 high, crossing the 20% loss threshold that has traditionally signaled a bear market.

“Sentiment is very weak and investors are selling big time,” Mona Chung, who helps manage $2.5 billion at Hong Kong-based Daiwa Asset Management Ltd., told Bloomberg. “If the [United States] goes into recession, undoubtedly that’ll drag down this part of the world.”

The Hang Seng Index lost 5.4%, while the Hang Seng China Enterprises Index [or H-shares Index], which measures the share price of Hong Kong-listed mainland China companies and includes several state-owned firms, lost 6.6%, its biggest decline in over three years.

“[H shares] have held up the most relative to other stocks, so they are playing catch up now,” Andy Mantel, managing director of Pacific Sun Investment Management, told MarketWatch.

China’s Shanghai Composite index declined 2.8%. Japan’s Nikkei index dropped 3.4%.

News and Related Story Links:

• Bloomberg:
  Hong Kong Stocks Have Biggest Drop Since Sept. 11 Attacks
• MarketWatch:
  China shares plunge as big funds head for the exit
• Xinhua
  :Hong Kong stocks close sharply lower

With ambitious plans for overseas sales and continued growth abroad, PepsiCo, Inc. (PEP) is reorganizing and adding senior-level managers to capitalize on opportunities outside of North America.

Previously, Pepsi was comprised of PepsiCo North America (with its own three divisions – Frito-Lay North America, PepsiCo Beverages North America and Quaker Foods North America) and PepsiCo International. Once reorganized, Pepsi will be split into three units, each with its own chief executive officer, consisting of:

• PepsiCo Americas Foods.
• PepsiCo Americas Beverages.
• And PepsiCo International.

PepsiCo Americas Foods will include Frito-Lay North America, Quaker and all Latin American food and snack businesses, including the Sabritas and Gamesa businesses in Mexico. John Compton, currently CEO of PepsiCo North America and a 24-year company veteran, will become its chief executive.

PepsiCo Americas Beverages will include Pepsi-Cola North America, Gatorade, Tropicana and all Latin American beverage businesses. Massimo d’Amore, currently executive vice president of PepsiCo International, will become CEO of the unit.

PepsiCo International will include all PepsiCo business in the United Kingdom, Europe, Asia, Middle East and Africa. Mike White will continue his role as CEO of PepsiCo International, but will also assume global responsibility for two strategic corporate functions: procurement and information technology, including the company’s business transformation initiatives.

Nooyi’s Global Vision

Within the next five years, Pepsi is angling to sell as many gallons of soda and bags of snacks in its markets overseas as it does in North America, Pepsi Chief Executive Officer Indra Nooyi told Bloomberg News in an interview a week ago.

International revenue made up 37% of PepsiCo’s $35.1 billion total sales last year, and is advancing at four times the rate of the U.S. and Canada markets – thanks to such market-tailored products as crab-flavored Lay’s in China, and lentil snacks in India.

International revenue will help Pepsi reduce its reliance on the United States market, where it gets the majority of revenue, compared with only 30% for rival Coca-Cola Co. (KO). To that end, PepsiCo has acquired more than a dozen companies abroad since 2000. In the U.S. market, it now plans to market products to increasingly health-conscious consumers, reducing its reliance on sugar-laden soda and such high-calorie salty snacks as Fritos.

"I suspect it’s going to be somewhere around 2010 or 2012, in that area, where it might catch up,” Nooyi told Bloomberg. "At its current trajectory, around that time, you could see a potential catch-up."

PepsiCo trails Nestle SA in global snack and beverage sales, while Coca-Cola leads in worldwide soda sales.

Through the first nine months of this year, PepsiCo Americas Foods accounted for about 45% of the company’s revenues. PepsiCo Americas Beverages accounted for about 30%. And PepsiCo International accounted for about 25%.

Nooyi, the CEO, expressed confidence that the new organizational structure will deliver double-digit profit growth in the next few years.

"Given PepsiCo’s robust growth in recent years, we are approaching a size which we can better manage as three units instead of two," Nooyi said yesterday. "Creating units that span the North American and international markets, as well as developed and developing markets, allows us to better share best practices among our North America and international businesses, while providing valuable development opportunities for our senior executives."

Positioning for Growth, Battle

Pepsi’s management and corporate shuffle basically splits its food and beverage divisions in half in the Western hemisphere. Meanwhile, food and beverages are under the same roof for its Eastern hemisphere operations.

The division allows Pepsi to allocate more time and attention to its prime growth market – Asia. During the third quarter, PepsiCo International profits rose 22% on the back of double-digit growth in China, Russia, Pakistan and the Middle East. And it gives the company a better position in the next big battle ground in the never-ending cola war with Coca-Cola. 

Money Morning has extensively covered Pepsi and Coca-Cola’s Asian strategies – as well as their sugary sweet third-quarter earnings in which Pepsi’s profits were up 17% and Coca-Cola’s up 13%. [McDonald's Corp. (MCD) and Yum! Brands Inc. (YUM) also are engaging in a similar war for the coveted Asia market.]

Pepsi and Yum! are two of the globally focused U.S.-based companies that several of Money Morning’s experts have identified as opportunities investors might want to research further. Their business models for growth don’t involve just Asia, but will benefit from having a solid strategy for Asia, said Contributing Editor Keith Fitz-Gerald.

And the more business they do outside the United States market, the more they will benefit from the falling dollar, which make U.S.-made goods cheaper for foreign consumers to buy. [Our research report, "Investments for a Weak Dollar World," is one of several research reports that list which U.S.-based companies follow this strategy and benefit in the face of falling greenback. The report is free of charge; please click here].

News and Related Story Links:

• Money Morning:
  Pepsi ‘Goes Red’ in China.

• Money Morning:
  Pepsi’s Stellar 3Q Gains Fueled By International Growth and Falling Dollar.

• Bloomberg News:
  Pepsi’s Nooyi says Overseas Sales May Catch U.S.

• Money Morning:
  Coca-Cola’s Big Third Quarter Highlights its Rivalry with Pepsi.

• Money Morning:
  McDonald’s Finds Unique Way to Beef up its Presence in India.

• Money Morning:
  Investments For A Weak Dollar World.

• Industrial and Commercial Bank of China (IDCBF), China’s largest bank, is buying 20% of The Standard Bank Group Ltd. (SBGOF), South Africa’s largest bank, in a deal valued at $5.56 billion, the Business Report of South Africa reported. Under the terms of the deal announced Wednesday, Industrial and Commercial will buy about 11% of the stock from existing shareholders and the remaining 10% from newly issued shares. Standard Bank plans to use the cash infusion to finance expansion. The company currently has branches in 18 African nations and a presence in 21 countries outside of Africa, including Brazil, Hong Kong and Russia.
• Petro-Canada (PCZ), an integrated oil-and-gas company based in Calgary, reported that third-quarter profits rose 14%. The Canadian company cited strong contributions from its North Sea and Canadian oil sands operations as the chief reasons for the increase. Earnings from continuing operations totaled $802.5 million for the quarter, up from earnings from continuing operations of $701.1 million for the same quarter a year ago. Petro-Canada shares rose 41 cents each, or 0.75%, to close at $54.76.
• On Monday, Umbro Plc. (UMBOF), the world’s largest supplier of soccer clothing announced it had accepted a takeover offer from U.S. shoe and fitness apparel giant Nike (NKE).  Nike will pay $582.2 million, or $3.94 a share – 61.0% higher than the closing price on Wednesday.  Shares of Umbro soared 15.3%, or 52 cents, to $3.89.  Nike gained 95 cents, or 1.5%, to $64.12, indicating investor approval of the deal.  With sluggish growth in demand for its products in the United States, Nike’s acquisition of Umbro will give it firm footing in the global athletics market where soccer reigns supreme. 
• PetroChina Co. Ltd. (PTR), China’s largest oil producer, could raise as much as $8.9 billion (66.8 billion yuan) from the sale of as many as 4 billion of its Class A shares in an initial public offering (IPO) that will be priced on Tuesday. The shares will start trading Nov. 5, according to The Wall Street Journal. The indicated price range is $2 to $2.23 per share. The range is well below the price of its Class H shares traded in Hong Kong, which closed at $2.50 yesterday. The mainland China government has encouraged a number of companies to make large-scale offerings on the domestic exchanges to meet strong demand from local investors. If the shares are sold at the top end of the price range and the company sells the maximum number of shares it plans, the IPO would be the largest on the domestic exchanges to date. Last month, China Shenhua Energy raised just about $8.9 billion (66.58 billion yuan) in its A-share IPO, making it the largest mainland offering so far.

Berkshire Hathaway Inc. (BRK.A, BRK.B) Chairman Warren Buffett yesterday (Thursday) paid his first visit to South Korea, where the billionaire U.S. investor has invested in 20 companies, including a 4% stake in the country’s Number One steelmaker, POSCO Ltd. (PKX), South Korea’s Yonhap news agency said.

In an email interview with Seoul-based Maeil Business Newspaper Sunday, the billionaire said South Korean stocks are still attractive, despite some analysts’ concerns that they may be overvalued.

"The Korean stock market a few years ago was by far the most undervalued market in the world," Buffett told the newspaper. "Since then, there has been a huge advance in the Korean market and the [Korean] won has appreciated against the dollar. Nevertheless, many Korean stocks still sell at more attractive prices than stocks in other major countries."

Buffett is the world’s second-richest man, with assets of $52 billion, according to Forbes magazine. His last major investment foray involved U.S. railroad companies.

[Editor's Note: Warren Buffett may well have just wised up on South Korea's potential, but we detailed that promise months ago. If you'd like to read our 6,000-word research report, “The Three Best Investments in Asia Today,” which includes detailed insights on Korea and other key markets, please click here. The report is free of charge.]
News and Related Story Links:

• TradingMarkets.com:
  Buffett Says Bought Stake in Posco, 19 Other S. Korean Companies.

• Reuters:
  S.Korea’s POSCO Says Warren Buffett to Meet CFO.

• Money Morning Investment Analysis:
  Warren Buffett’s Berkshire Hathaway is Riding the Rails Again.

• Bloomberg News:
  Buffett Says Investors Should Be ‘Cautious’ on China.

• Money Morning:
  PetroChina Surpasses GE as Worlds Second Most Valuable Company; Sets Sights on Exxon.

• Reuters:
  CNBC Downplays Bear Stearns Investor Talk.

• Money Morning News:
  Warren Buffett and Berkshire Hathaway Rumored as Bear Stearns Investors.

• MarketWatch.com:
  Bear jumps on report bank may sell minority stake; Buffett, Bank of America, Wachovia, Chinese groups interested, N.Y. Times Reports.

Vietnamese stocks have rocketed over the past few weeks, gaining 25% since early August. The recent rush into emerging markets has boosted near-term investor sentiment, while the long-term story remains compelling. Vietnam has posted gross domestic product (GDP) growth of more 7% a year for four straight years, and should grow by about 8.5% this year.

This is no surprise to those who follow Vietnam’s growth. Many analysts predict Vietnam will be the country that emerges after the current wave of emerging economies mature and their growth rates slow down. A big factor in Vietnam’s favor is that its economy is growing soundly, instead of at rates that border on out of control.

Deregulation and privatization, along with booming commodities markets and steadily increasing foreign direct investment (FDI) have buttressed the nation’s economic growth. Higher real incomes are fueling consumption. Car ownership, for example, is now up to 5% of the population.

The boom is evident from the growth rates at Sacombank, Vietnam’s biggest private-sector bank, notes Christopher Wood of CLSA, a provider of brokerage and investment-banking services in the Asia-Pacific market. The brokerage firm expects loans and pre-tax profits to grow by 90% and 130% respectively this year. And Vietnam’s population of 85 million still only has six million bank accounts.

Property ownership is on a roll. And the privatization of major state-owned firms is becoming an important factor in the market’s recent upswing, Wood says. Between 20 and 30 banks – including the four major state-owned banks, telecom firms and some infrastructure companies – are expected to hit the market over the next three years.

All this activity should give Vietnam’s tiny stock market a big boost in value and raise the profile of this "truly exciting market," Wood and other experts say. The leading stocks, as a group, are trading at about 25 times earnings, but this multiple is matched by projected profit growth, making Vietnam appear reasonably valued on a "PEG ratio" (price/earnings to growth rate) basis, Wood says.

Unfortunately, in spite of this financial allure, U.S. investors will for now have to take a rain check on Vietnam, as the country doesn’t have many companies that have registered their shares with the U.S. Securities and Exchange Commission. Nor is a Vietnam exchange-traded fund (ETF) currently available in the U.S. market.

Indeed, until a direct profit pathway is paved, investors may have to take the road less traveled, tapping into the many big-name foreign players plunking down major money on Vietnam projects. Key among them:

• U.S. chip giant Intel Corp. (INTC) committed $605 million for a test-and-assembly factory in February 2006, and has boosted its total Vietnam commitment to $1 billion.
• Korean steelmaker POSCO Ltd. (PKX) plans to invest $1.13 billion in new steel plants.
• Athletic-shoe innovator Nike Inc. (NKE) is responsible for more than 130,000 Vietnamese jobs.

In total, foreign investment in Vietnam jumped by 49% in 2006. And much more is expected, due to Vietnam’s brimming potential. Consider these alluring statistics:

• More than half its population is under 25 years old.
• At 2%, its unemployment rate is among the world’s lowest, trailing only Azerbaijan, Cuba, Iceland, Andorra and Liechtenstein.
• Its labor and production costs are roughly one-third that of China’s, making Vietnam a worthy rival in the contest for new production sites.
• It shrugged off the 1997 "Asian Contagion" financial crisis and averaged 5.5% growth for each of the next two years – while other nations in the region saw their own economies shrink.
• And it became a member of the World Trade Organization late last year.

The next step is for Vietnam to open its stock market to U.S. investors. And that may happen sooner than many experts expect.
Money Morning Associate Editor Mike Caggeso contributed to this report.

News and Related Story Links:

• China Post:
  Vietnam’s Economy Grows 8.16%.

• Money Morning Investment Analysis:
  The Market that will Emerge After the Emerging Markets.

• Money Morning Investment Analysis:
  The World’s Leading Electronics Manufacturer Makes Its Move In Vietnam.

• China View:
  Vietnam to Make Bigger Online Game Revenues.

• Wikipedia:
  The Economy of Vietnam.

• Money Morning Special Research Report:
  Global Investing: Has Wall Street Rigged the Game?

• Money Morning Special Research Report:
  International Investing: Why U.S. Investors are "Boxed Out" of Big Global Profits.

• Intel.com:
  Vietnam Properties.

• CBRonline:
  Intel to Spent $1 Billion to Build New Vietnam Factory.

India, no doubt, has corned the global market in the service sector. Think of it as the call center to the world. But China has established itself as the world’s factory floor, making everything from Barbie dolls to match sticks.

Yet while the growth in India has been impressive (its economy grew by 9.4% last year), it’s lackluster numbers on the manufacturing side have Indian entrepreneurs and policymaker disappointed and frustrated.

India’s service sector now accounts for more than half of the nation’s GDP. And that’s where its greatest growth has been, rising from 37% in 1990.

The only problem is that manufacturing has hit a wall, growing only by 2% of GDP from 1990 to 2005.  And many Indian entrepreneurs and policymakers fear India is losing out to China in a big way.

In China, manufacturing now accounts for 35% of GDP, according to the Boston Consulting Group. Compare that to 6% in India. Same goes for global trade. China clocks in at 7%. India a meager 1%.

"In our manufacturing potential, we are fast losing the race with China," J.J. Irani the director of Tata Sons said in an interview with BusinessWeek. Tata Sons is the parent company of the Indian conglomerate Tata Group, which is comprised of 98 companies that span across seven business sectors.

"China is more organized and faster than India," Irani went on to say, "The gap is widening."

Easing Up On Government Regulation May Help

Over the past two decades, India has been loosening its former dirigiste model, with strong government influence, in favor of a market-based economy. Direct taxes were reduced, government licensing of industrial activity was dissolved, and large companies were given more avenues for investment.

But some outmoded laws and restrictions still remain in effect, weighing heavily on manufacturing, curtailing Indian exports, and stifling the nation’s economic growth.

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Labor laws are notoriously strict in India, and the manufacturing sector has been bound in a cocoon of red tape. For example, in the manufacturing industry, a company that employs more than 100 people must notify the government of any plans to layoff or fire a single worker. However, that law does not apply to the service sector.

"We are overpoliticized and all of our problems have a political solution," Irani said.  "Economic problems need economic solutions. Religious problems need religious solutions. Social problems need social solutions. But everything here is an industrial solution, a political solution."

The Paris-based Organization for Economic Cooperation and Development agrees. Last week it released a report that stated: "The government’s target of reaching GDP growth of 10% in 2011 is achievable if reforms continue."

The report also concluded that: "In service sectors, where government regulation has been eased significantly or is less burdensome, output has grown rapidly, with exports of information technology-enabled services particularly strong."

The OECD is clear on its position that the country still has to loosen "restrictive" labor laws and the "inefficient" regulation of product markets if it wants to reach its goal. Additionally, policymakers must simplify the tax codes and encourage privatization.

Building From the Ground Up

Another key focus for India to gain competitiveness is infrastructure.

Expensive and unreliable electricity make blackouts all too common. Insufficient roadwork has left streets riddled with potholes and jammed with traffic.  Rolling blackouts force some factories to maintain costly back up generators.

India’s transport network is so inefficient it’s estimated that up to 40% of the country’s farm produce ends up rotting in fields or spoiling en route to customers. The price of food staples rises as a result, and that drives inflation.

BusinessWeek pointed out that the India of today bears a striking resemblance to the China of a decade ago.  Ten years ago China’s economy was getting ready to takeoff, but the infrastructure wasn’t there. So Beijing launched a massive modernization initiative, building 25,000 miles of expressway.  But India still has just 3,700 miles. That’s because only 4% of India’s GDP gets reinvested into infrastructure development. In China that number is more than double that, closer to 9%. 

Plans for improvement are ambitious, and India is taking the matter seriously. But putting the plans into action will be costly and time consuming.  New airports are currently under construction in Bangalore and Hyderabad. Nearly 3,750 miles of highways were built between 1999 and 2005 at a cost of about $7 billion.

And a little more than $12 billion went into the Golden Quadrilateral highway, which links India’s four biggest cities of Delhi, Mumbai, Chennai and Kolkata.

But right now, only 760 of the planned 4,500 miles of highway running north to south, and east to west, across the country, have been actually been completed. 

The heavy price tag that has come with progress has forced India to operate with a very high margin of debt. They country’s debt equates to 75% of its GDP (down from 82% in 2004), one of the worst ratios in the world. So, what’s an emerging country to do?

The Struggle to Attract Foreign Investment

If India wants to keep moving forward, it’s going to have to count on some big time contributions.  The Indian government estimates (or at least hopes) that public and private organizations will contribute between $330 billion and $500 billion to the nation’s development over the next five years.

That may very well be the case, but India is also going to need some help from abroad.  Inflows of foreign direct investment increased to 2% of India’s GDP from less than 0.1% in 1990. And the country only attracted $8 billion in foreign direct investment last year. China attracted $63 billion. 

Last year, Intel (NASDAQ:INTC) passed over India and chose Vietnam as the site of a new chip assembly plant. Intel made no secret of the fact that it looked to India as a home for the project first, and the snub baffled the country’s business community. Intel never offered a public explanation. Industry insiders have said it was the lack of reliable water and electricity that turned off the software giant.

The estimated cost of that plant was $605 million, and now Intel is ready to spend $1 billion on a semiconductor test and assembly plant in Vietnam.  This is just a fraction of the foreign investment that has retreated to other Asian interests in light of India’s shortcomings. 

Still, with many improvements underway and others on the docket, India isn’t out of the race.  Ford, Hyundai and Suzuki all export a significant number of cars from India. LG, Motorola, and Nokia all turn to India for to produce hardware for their respective phone services. And Honeywell, Siemens, and Schneider have all built factories for a variety of electronic products. Also, India has close to 60 manufacturing plants that adhere to the requirements of the U.S. Food and Drug Administration, the largest number outside of the United States.

Investing in India

India is losing the race with China but it has made a very strong impression in the service sector. If government reforms, infrastructure development, and foreign investment continue to increase then it may be able to make up some ground, but it’s going to be a tough road ahead literally and figuratively.

There aren’t many places to look if you’re interested in getting in on India’s developmental push.  A good place to start however would be Sterlite Industries India Ltd. (SLT). The company’s primary business is the production of copper in India. Sterlite’s copper cathodes and cast copper rods can be put to use in housing wires, electrical cables, and telecom cables. The company also mines bauxite and zinc ore, and produces aluminum conductors and other aluminum products.

A more diverse play might be the India Fund Inc. (IFN). The India Fund is a non-diversified, closed-end management investment company that invests in Indian equity securities.  At least 80% of the Fund’s total assets are invested in equity securities of Indian companies. Its portfolio includes common stocks, warrants and short-term investments.

News and Related Story Links:

• Money Morning Investment Analysis:
  India’s Outsourcing Capacities are Evolving and Shrinking at the Same Time

• Money Morning Investment Analysis:
  India’s Richest Realtor Lobbies For a Rate Decrease Despite Strong Growth

• Organization for Economic Cooperation and Development:
  India needs more economic reforms to widen benefits from growth, says OECD report

• BusinessWeek:
  ‘We Are Fast Losing the Race With China’

• BusinessWeek:
  The Trouble With India

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China Mobile Ltd.’s (NYSE:CHL) 30% nine-month profit growth is just as impressive as it is worrying – to Warren Buffett at least.

The world’s largest mobile-phone operator credited rapid subscriber growth and gains in value-added businesses for its growth, which has handed investors 120% gains on the company’s stock since year to date.

To be clear, Buffet didn’t cite China Mobile specifically when he warned investors to be "cautious" about investing in China, whose benchmark index has more than doubled this year. But its rapid growth was one of the many triggers of the famed billionaire’s investment alarms.

"We never buy stocks when we see prices soaring," Bloomberg reported Buffett telling reporters yesterday in Dalian, northeastern China, home to a subsidiary of Berkshire Hathaway Inc. "We buy stocks because we’re confident of the company’s growth. People should be cautious when they see prices rising."

Buffett made headlines throughout the year by paring down his stake in PetroChina Co. Ltd. (NYSE:PTR), now the second-largest company in the world, thanks to a 76% year-to-date growth in its stock.

Right now, you can make a case for buying or selling China Mobile. On the plus side, its business is solid, and telecommunication customers are continuing to opt for cell phones over conventional landlines. For proof, note the poor nine-month 1.8% profit growth of China Telecom Corp. Ltd. (NYSE:CHA).

On the down side, like many Chinese heavyweights, China Mobile is trading at its peak. But many investors don’t care about that as much as they care about what Buffett says. And since Buffett said to "be cautious," people will, and that’ll help squeeze some of the air in China’s bubble.

But as Money Morning reported in August, China Mobile has a possible Achilles Heel that could upend its massive growth. Only a small percentage of China Mobile’s tens of millions of new users this year are contract customers. The large majority are pre-paid users, meaning they haven’t committed to China Mobile as their long-term provider.

In contrast, American telecommunication companies lock customers in with term contracts that offer discounted prices. The point of the contracts isn’t just to guarantee regular cash inflows, but also to make sure competitors don’t get a cent of its customers’ money. 

China Mobile may be far ahead of its competition, but it’s also giving them the opportunity to cherry pick its customers. Add a possible correction to the mix, and long-term China Mobile investors could see the stock’s value ski down the mountain it quickly climbed this year.

News and Related Story Links:

• Bloomberg:
  Buffett Says Investors Should Be `Cautious’ on China

• Money Morning:
  PetroChina Surpasses GE as Worlds Second Most Valuable Company; Sets Sights on Exxon

• Wall Street Journal:
  In China, Results Indicate a Switch To Mobile Phones

• Money Morning:
  China’s Mobile Phone Competition Will Escalate as Business Grows

Many investors have been shell-shocked over the last few days as they watched the dollar continue its slide, the stock markets perpetuate their recent gyrations, and crude oil punch through the $90 a barrel level. And now industry experts are now saying the U.S. housing market won’t turn around until 2009 or 2010.

Investors who see this as a time to "lay low" obviously haven’t been reading Money Morning.

That’s unfortunate, since those investors are missing out on the profitable suggestions we’ve offered in recent months that are already paying off nicely. What’s more, most of these strategies also help investors better manage (reduce) risk.

But since I truly can’t stand "I told you so’s," let’s not go there.

Let’s instead concentrate on what you still can do right now to achieve bigger returns in the days, weeks and months ahead, even if the U.S. markets go to heck in the proverbial hand basket.

Here are three steps you can take right now to help your financial future stay on track – even if the U.S. markets melt down:

• First, go global or go home. I coined this phrase several years ago and it’s a not-so-subtle jab at the fact that the world’s financial markets are decoupling from the United States for the first time in history. The global financial markets are increasingly consumer driven – but by consumers from outside the United States. This is a dramatic departure from the days in which world’s markets lived or died by the spending of U.S. consumer. But no longer. 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.

• Second, keep an eye out for income. As U.S. markets soften and the dollar continues to weaken (and it will), income investments will play an increasingly important role in the building of your wealth. Wall Street would have you believe that this is a new idea. It’s not. In fact, it’s one of the "oldest new ideas" I’ve ever seen. Studies show that up to 97% of total stock market returns since 1871 come from reinvested dividends. Historically, income investing meant utilities and muni bonds only. What a yawner. Now it can also mean higher-yielding investments from abroad.

• Third, befriend the global trends. It’s not enough just to go global or to keep an eye on income. You’ve got to combine those two strategies and then also align your money with the powerful global trends of our time. We’ve been following those trends for months here at Money Morning. Three of my favorites are energy, tangible natural resources and defense/aerospace. By befriending these powerful global trends, you dramatically increase your odds for success.

Now all we have to do is to put these three strategies to work in the most opportunistic way possible. Here are some specific investment choices in the categories I’ve just mentioned:

• To capitalize on world’s biggest brands and launch your own personal bull market, consider the SPDR Global Titans exchange traded fund (ETF) (DGT) or the SPDR Dividend Aristocrats ETF (SDY). Not only will you capture and capitalize on the world’s biggest brands here, but you’ll also have the stability of companies that are truly global in scale. Note that SDY is more selective because of its income focus and the fact that it includes the bluest of the blue chips that have raised dividends for most every one of the past 25 years.

• When it comes to China, I think you’ll hard-pressed to find anything better or simpler than the iShares FTSE/Xinhua China 25 Index ETF (FXI) which replicates the FTSE/Xinhua Index or the China Regional Opportunity Fund (USCOX) from U.S. Global Investors Inc. (GROW), which casts a broader net outside China to include the economies of neighboring countries doing extensive business with China. A great strategy. [For our report on just how to play the FXI ETF, which is trading at a near-record level, please click here. The report is free of charge].

• If currencies are your thing, you could invest in the DB G10 Currency Harvest Fund (DBV), which exploits trends between the world’s Top 10 currency trading pairs.

• And, when it comes to energy, I still particularly like the Canadian Royalty Trusts, as I have for years. Not only will you benefit from rising energy prices, but the best trusts like the Enerplus Resources Fund (ERF) and Canetic Resources Trust (CNE) have proven, deep reserves and are likely acquisition candidates for cash rich buyers as the Abu Dhabi / Penn West takeover recently proved. Plus, the hefty dividends you bank in the meantime won’t hurt either, because a falling dollar only makes them more valuable.

The bottom line is this: The markets are soft, U.S. Federal Reserve Chairman Ben S. Bernanke is talking out of both sides of his mouth, and Wall Street is seemingly bent beyond repair from the subprime mortgage mess. But your investment returns don’t have to be a mess, too.

So go global and go home – wealthy.

News and Related Story Links:

• Money Morning Investment Report:
  Record Surge of China ETF Speaks to Risk and Opportunity of Chinese Market.

• MarketWatch.com:
  Hang Seng Sets Record, Leads Broad Asian Rally.

• Money Morning Interview:
  China: Bubble or Bull Market?

• Money Morning News:
  Minsheng Becomes First Mainland China Bank to Invest in a U.S. Bank.

• Money Morning Investment Analysis:
  Here’s Why MGM is a High-Profit Play on China.

Sony Corp. (SNE) is selling its advanced computer chip operations to Toshiba Corp. (TOSBF), a proposed $858 million deal that’s the latest element of Sony’s ongoing turnaround efforts, The Associated Press reported yesterday (Thursday).

In a separate-but-related development yesterday, Sony slashed the U.S. price of its PlayStation 3 gaming system by $100, or 17%, and introduced a lower-priced version in an attempt to jump-start lackluster sales.

Sony’s plans were detailed by The AP and were attributed to an unnamed Sony official. This is the latest in a series of moves Sony has made in an effort to pare operations and revive its struggling electronics business.

Reportedly, the sale will include the manufacturing business for the Sony "Cell" chip used in its PlayStation 3 gaming console.  Sony has pinned much of its future on the success of the gaming console, which has struggled against the Nintendo (NTDOY) Wii and Microsoft Corp.’s (MSFT) Xbox 360, the platform for the wildly popular Halo 3.

Chip production is capital-intensive and also demands aggressive, ongoing research – two factors that also make it expensive. And if the chips are being produced for a limited set of items, that can make it tough to be cost competitive. Sony hopes to have the sale completed by March, The AP reported.

Long viewed as one of the most innovative electronics company on the planet, Sony has made a name for itself through repeated innovation. Indeed, it’s one of the rare players that has actually rolled out paradigm-shifting products – and not just once, or even twice, but several times. Some of those products have even affected American society’s popular culture.

Sony was founded as a radio-repair shop by Masaru Ibuka in a bombed-out building in Tokyo, Japan, immediately after the end of World War II. Akio Morita joined the company the next year, and soon the firm had produced its first real product, a tape recorder known as the Type-G – Japan’s first domestically produced recording unit.

After traveling to the United States in the early 1950s, Ibuka heard about Bell Labs and its invention of the "transistor," and persuaded the American firm to license the technology to his company, then called Tokyo Telecommunications Engineering. Sony started making transistor radios, and by the middle 1950s, it had leapfrogged U.S. radio leaders Regency and Texas Instruments to build the first commercially successful transistor radio.

"Pocket-sized" transistor radios soon followed – just as a new style of music called rock-and-roll swept across the United States and then the world. Teens everywhere could be seen walking around with a transistor radio held up against one ear. Yearly transistor radio sales soared from about 100,000 units in 1955 to 5,000,000 by the end of 1968, creating the consumer-electronics industry and vaulting Sony into the No. 1 position.

The year 1979 saw Sony craft a blockbuster encore, introducing a portable tape player that was "listen only." Called "The Walkman,"  Sony USA recalls that those early "personal stereos" confounded critics both inside and outside the company who emphatically held that "without a recording function, it won’t  sell." But it did, and was actually another huge success, "proposing new lifestyles [such as walking, jogging and private listening] which became popular around the world," Sony says.
Video gaming had been its latest success story, with its PlayStation series.

Chief Executive Howard Stringer told the Financial Times that the company is planning to distribute video and music through its PlayStation network. Sony’s goal would be to turn the PS3, already Blu-ray disc compatible, into a multimedia device capable of networking with other Sony hardware, such as TVs, MP3 players, and PlayStation Portables (PSPs).

"We are trying to get our devices to talk to each other efficiently," Stringer said. "PlayStation Network should migrate from gadget to gadget. But initially it starts with PlayStation devices then to TV and beyond. That’s the goal."

He gave provided no timetable for the implementation of these developments, but said, "We won’t know how effective [the effort] is until early next year."

Sony has already unveiled a device that lets the PS3 act as a digital TV tuner and recorder, as well as software that enables the PSP to make voice and video calls.

As consumers edge closer to the holiday season, Sony has confirmed the Nov. 2 release of two new PS3 models. Both will have a Blu-ray drive, HDMI output, an integrated Wi-Fi connection, and an expanded memory.  A 40-gigabyte version will retail for $399 ($100 less than the 20GB model that launched last year), while an 80-gigabyte bundle will sell for $499. A Spiderman 3 Blu-ray disc will be included with the consoles.

The success of the PlayStation 3 is paramount to the success of Sony, but the company has also had a strong resurgence in other areas. Stringer took the helm in 2005, as the first foreign-born leader of the Japan-based company. He immediately set to work slashing jobs, closing down plants, and abandoning unprofitable divisions.

Sony has bolstered its flat-panel TV business with a joint venture with Samsung Electronics Co. It also floated Japan’s most profitable initial public offering (IPO) of the year when it launched Sony Financial Holdings Inc. The offering generated approximately $2.99 billion (348 billion yen), 10 times the proceeds of any other Japanese IPO this year.

Sony Financial counts on insurance premiums and fees for 90% of its revenue, and includes Sony Life Insurance Co., Sony Assurance Inc., and online lender Sony Bank Inc. The company started operations in 1979 as a joint venture with Prudential Insurance Co. JPMorgan Chase & Co. (JPM) and Nomura Holdings Inc. (NMR) managed the share sale. Sony’s 100% stake in the company was reduced to approximately 60%.

Sony’s second quarter net profit was $570 million (66.46 billion yen), more than double that of last year.  It is expected to release its most recent quarterly earnings next week.

News and Related Story Links:

• Money Morning:
  Sony Financial Holdings Shaping to be Japan’s Biggest IPO of the Year.

• Money Morning:
  Microsoft Eyeing GPS-Maker Garmin, Analyst Reports.

• Money Morning:
  China Communication Construction Taunts Barred U.S. Investors With 136% First-Half Profits, 130% YTD Stock Gains.

• The Associated Press:
  Sony to Sell Chip Operations to Toshiba.

• The Financial Times:
  Sony steers PS3 towards music and films.

• Sony Corp:
  Product and Technology Milestones (Radios).

• Sony Corp:
  Product and Technology Milestones (Personal Audio).

• Sony PlayStation (Corporate):
  PlayStation.com.

• Bloomberg News:
  Sony Cuts PlayStation 3 Price by $100 to Boost Sales.

• Wikipedia:
  
  Sony.