To Capture Asia’s Upside, Look at Stocks of U.S. Multinationals Performing Strongly There
Value investors can smile at the relatively strong 2011 performance of solid, large-cap, dividend-paying companies. This theme should persist in 2012, but the geographic source of the upbeat results will become more pronounced.
The best performing Dow Jones Industrial stock was McDonald’s (MCD). But where is the best performance at McDonald’s? The strongest region for the company in sales and income growth is what it calls APMEA, Asia/Pacific Middle East and Africa. Pfizer (PFE), another big Dow winner, posts its strongest gains in China, Turkey and other emerging markets.
McDonald’s and Pfizer were among the Dogs of the Dow going into 2011 – stocks with strong dividend yields at the start of 2011 that, in keeping with the Dogs theory, scored well for the year. For 2012, DuPont (DD), with a current dividend yield of 3.6%, is one Dog that expects the Asia/Pacific region to bark. The region led DuPont’s growth in 2010 and remained strong in 2011.
Investing directly in emerging market stocks didn’t work last year, as indicated by the 2011 results of two popular Asia/Pacific ETFs, the SPDR S&P Emerging Asia/Pacific Fund (GMF) and the iShares MSCI Pacific ex-Japan Fund (EPP).
The consensus explanation for 2011 weakness in Asian-domiciled stocks is the contagion effect of weak demand in Europe and North America for Asian exports. With outlooks for economic growth in North America and Europe still tepid, you could remain pessimistic about Asia. But analysis centered on Asian exports ignores evidence that government economic policies in the much of the region are shifting from exports toward domestic consumption.
China says it will selectively encourage foreign investment in 2012, with an aim toward building internal economic infrastructure , especially energy for local consumption, not export industries such as autos.
Investing in the Asia/Pacific region via blue-chip U.S. multinationals is nothing new. But opportunities in the region are particularly interesting this year for two reasons: the region doesn’t have a common currency or unsustainable debt burdens; and, odd as this may seem in a cultural context, the region also doesn’t have a Tea Party.
Devising and implementing economic growth policies have been all but frozen in Europe, where national politics centered on the euro are subverting progress, and in the United States, where political gamesmanship promises a do-nothing election year.
By comparison, no one in China and its emerging neighbors stands in the way of policies that foster domestic consumer demand and long-term investments in local infrastructure. Global companies that help implement these policies will reward their investors in 2012.
Filed under: Investing Ideas