Contrarian Stock Market Investing News - Featuring Bargain Stocks » Vietnam

Vietnam’s Coming Resurgence Explained: 6 Reasons Why You Should Get In Now

Manraaj Singh — Sat, 21 Jun 2008 01:22:16 +0000

The government is serious about tackling inflation. Investor confidence has returned. The IMF believes Vietnam is on the right track. Food inflation is set to fall drastically. Domestic manufacturing capacity increasing rapidly. Oil refinery set to come online in 2009.Let me explain this in a bit more detail…

Vietnam’s Ho Chi Minh City share index continues to be a leader this year. Once it led on the way up, this year it’s been leading global markets on the charge down. The index fell on every trading day in May and in early June as well. It’s now down by 60 per cent since the beginning of the year.

…Which begs a simple question: are we stark raving bonkers to still be in love with Vietnam?

The answer, of course, is no. This is still one of the most exiting opportunities out there. And there are clear signs that Vietnam’s market may now be at a turning point as the government takes strong steps to battle inflation even if it means sacrificing growth.

We’ve seen a sharp fall in most Asian share markets this year — China is down by 48%. So, Vietnam’s drop is actually part of a bigger market correction. But, added to that, investors have become skittish about Vietnam’s high inflation and the country’s growing trade deficit.

At the end of May, inflation in the country hit 25 per cent – the highest level since 1993. And then there is the trade deficit. It is expected to be above $15 billion for the first five months of this year. That’s a considerable increase on the 2007 deficit of $12 billion. But when you look beyond just the numbers, the story isn’t anywhere nearly as bad as it sounds. In fact, it points the way to Vietnam’s long-term growth.

After years of growth, these economies are facing questions over how to contain rising prices, exacerbated by the soaring value of oil and food.

We have already seen clear evidence that interest in the market is rising again. On June 10th — the day before the market hit its nadir — just $2.4 million of trades took place. On Tuesday, that had risen to $20 million.

Slamming the brakes on inflation…

The trigger for the change in mood was the State Bank of Vietnam’s decision to raise interest rates from 12 to 14 per cent last week. That was the second interest rate rise in just three weeks and makes them the highest in Asia. Investors were looking for a sign that the government was serious about tackling inflation and they got one.

Better yet, the government has indicated that it may raise rates even further in order to bring inflation down to single-digit figures by the end of next year. They’re clearly on the right track and the move has won them a pat on the back from the IMF.

In Vietnam, food accounts for almost 43 per cent of the consumer price index. And the rise in food prices has been a global phenomenon. The global rise in rice prices this year has had a huge impact on Asian countries. In the Philippines, armed soldiers were required to guard the countries rice supplies.

Even here in London, the Chinese restaurant across from our office has put a 30p “temporary surcharge” on all its rice dishes. I somehow doubt that it’s going to vanish now that the price of rice is coming back down…

But Vietnam’s finance minister, Vu Van Ninh, says that the country now has sufficient supplies to avoid further price increases, while still exporting 4.5m tonnes of rice this year. So we should see a sharp drop in food inflation in Vietnam this year.

Figures are like a bikini…

Figures are rather like a bikini. What they reveal is suggestive, but what they conceal is crucial…

Just look at the other great bugbear that has spooked international investors — Vietnam’s soaring trade deficit. It isn’t anywhere nearly as dire as it sounds either. Far from it…

Vietnam’s biggest import items are machinery and equipment (”M&E”), construction materials and refined fuel. These are all items that are vital to the development of an emerging economy. Most of them still have to be imported, but that’s changing fast. A lot of these capital goods are being used to build-up domestic manufacturing capacity — factories and infrastructure. It won’t be long before it is able to locally produce a lot of what it now imports. Take steel, for example. Vietnam is a net importer of steel today, but it will soon have sufficient production capacity to satisfy domestic consumption.

There’s a world of difference between a country that has a trade deficit because it is importing equipment and material to build factories, power plants and roads, like Vietnam is doing; and one that has a deficit because it is addicted to imported Sony Playstations, iPods and cheap sneakers.

Again, we’ve seen global markets reeling under the impact of surging energy prices. But what very few people realise is that Vietnam is actually self-sufficient in terms of crude oil production. What’s been missing is a domestic oil refinery. So the country has actually had to export 100 per cent of its crude oil and then re-import it as refined fuel. That’s been a major contributor to its trade deficit and it’s also been a major driver of inflation. But the country’s first oil refinery is going to come on-stream in 2009 — and that should have a massive impact on both inflation and trade deficit.

Vietnam’s government is obviously on a steep financial learning curve — remember that this is still a Communist country — but they’re learning fast. And, crucially, they’ve shown that they’ve got the will to act.

International investors have been stung by the fall-out from the credit crunch and the sharp fall in Asia’s markets this year. And that has left them a lot more risk-averse than they were at this time last year. But as a clearer picture of the outlook for Vietnam begins to emerge, I believe that we will see the country’s share markets rebound in the second half of the year.

I also believe that we will see this rebound happen rapidly, as sentiment regarding the Vietnamese market begins to turn in the coming months.

This is an excellent time to buy in to what – in my opinion – is the best profit opportunity this emerging economy has to offer.

Find out what this play is right now…

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: Vietnam’s Coming Resurgence Explained: 6 Reasons Why You Should Get In Now

Multinational Corporations Step up the Search for the ‘Next China’

Jason Simpkins — Sat, 21 Jun 2008 00:16:35 +0000

As far as foreign direct investment in Asia is concerned, China is still the undisputed leader, drawing approximately $42.78 billion in just the first five months of the year, an increase of 55% from the same period a year ago.

But China is coping with a number of growing pains that include higher wages and a strengthening currency. That has left a void for other emerging markets to step up and take the place of a multinational corporation’s best friend.

China used to be thought of as the world’s factory floor – a haven of cheap labor and minimal regulatory oversight for large multinational companies. The result was a massive influx of foreign investment and rapid gross domestic product (GDP) growth. But the country has outgrown this model and is shifting from low-skill, labor-intensive industries to a higher standard of living.

A recent study by the Booz Allen Hamilton Inc. consulting firm found that wages in China rose 9.1% for white-collar managers and 7.6% for blue-collar workers over the past year, the San Diego Tribune reported.

“The days of massive labor oversupply are over,” Cai Fang from the Chinese Academy of Social Sciences (CASS), said at a recent economic forum. “According to my research and relevant surveys, the wages of China’s migrant workers rose 2.8% in 2004, 6.5% in 2005, 11.5% in 2006 and 20% in 2007.”

Part of the reason is that China’s notorious one-child family planning policy is beginning to cause a labor shortage.

Last year, Zhang Yi from the Institute of Population and Labor Economics, told Asia News that the one-child policy has produced an effect where fewer rural workers are going into cities to work.

“In the beginning, it was believed that our big population would be a hindrance to our economic development. But over the past decades, experience has told us otherwise,” Zhang said. “Japan, for instance, has little in the way of resources and boasts one of the highest population densities in the world, but it is a thriving economy and one of the richest nations. Labor is the most important source of wealth.”

By 2025, China’s labor force will have been shrinking in total size for more than a decade, according to Zhang.

Another problem is inflation, as high consumer and producer prices are spilling over into wages. Consumer prices rose 7.7% in May after inflation reached a 12-year high of 8.7% in February. China’s producer price index rose 8.2% in May, the highest in more than three years.

Inflation also makes exports more expensive for foreign nations, particularly the United States. The Labor Department said last week that prices for Chinese-made goods were 4.6% higher in May than a year earlier.

Meanwhile, the dollar has fallen 20% versus the yuan since 2005. Yesterday (Thursday), The yuan rose to its strongest position ever, trading at 6.8762 against the U.S. currency as of 11:53 a.m. in Shanghai, Bloomberg News reported.

Companies used to avoid higher wages by moving further inland, but even rural villages are finding it difficult to muster up enough manpower to furnish factories. And now new government regulations and labor laws have companies retreating beyond the country’s borders.

Earlier this year, revisions to China’s labor laws greatly expanded the rights of workers and increased their bargaining power. A loophole that had allowed companies to layoff employees hired on temporary or fixed-term basis without compensation has been closed. Workers employed by a company for 10 years are now entitled to one month’s severance pay for every year worked. And employers are required to consult an “employee representative congress” with regard to changes in hours, benefits and compensation.

Willy Lin, managing director of Milo’s Knitwear (International) Group, told the Financial Times that the new labor law could increase costs by as much as 8% in 2008. However, in collusion with a higher minimum wage, increased social security payments and outside factors such as the appreciation of the yuan, Lin thinks the price paid by Chinese employers could be much greater.

“We estimate that, added together, labor costs [in mainland China] will be close to 40% higher for this year,” he said.

China is also phasing out its practice of charging lower corporate tax rates for foreign companies. And while it does so, other Asian countries are beginning to look more appealing to foreign companies.

Here are a few:

The Next China

Vietnam had a banner year in 2007, attracting $20.3 billion in foreign direct investment (FDI). But the country already expects to have accumulated another $23 billion in FDI in just the first half of 2008.

Canon Inc. (ADR: CAJ), for instance, is no longer expanding its operations in China, but it is doubling its Vietnamese workforce to 8,000 at a printer factory outside Hanoi, the New York Times reported. Both Nissan Motor Co. (ADR: NSANY) and Hanesbrands Inc. (HBI) and China’s own Texhong Textile Group Ltd. are also reportedly expanding their operations nearby.

“We found more ready availability of both land and labor in both Vietnam and Thailand,” Gerald Evans, president of Asia business development at Hanesbrands, told The Times.

Where as unskilled Chinese workers now earn $120 a month for a standard 40-hour workweek, factory workers in Vietnam make as little as $50 a month for a 48-hour workweek that includes a full day on Saturdays, the paper said.

Other facts to consider about Vietnam:

More than half its population is under 25-years old.
At 2%, Vietnam’s 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 of China’s, making Vietnam a worthy contestant in the contest for new production sites.
Its economy was able to shrug 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 contract.
Since January 2007, it’s been member of the World Trade Organization.

Frontier Markets

Chris Mayer — Fri, 13 Jun 2008 21:47:56 +0000

With the market the way it is today, you can’t help but look for an investment, any investment, that might react differently than everything else. These kind of investments are “non-correlated” because they move independently of the overall market. But they can be tricky to locate, and even harder to trust.

Frontier Life

When the stock market turns ugly, the quest for “non-correlated assets” intensifies. A non-correlated asset is fancy Wall Street talk for something that doesn’t move lock-step with the overall market. When the market falls, a non-correlated asset might actually rise, or at least hold its own better than the market.

Gold is a classic example. Its price tends to rise during times of stock market distress. But very few investments can rival gold’s long history of non-correlation. Imposters abound. The imposters might move independently of the overall market for months or years at a time, thereby creating the impression that they are non-correlated. But when the markets really turn nasty, investors often learn that their “non-correlated” asset tumbles just as sharply as an S&P 500 Index fund.

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However, some investors think they’ve found a reliable new non-correlated asset: “frontier markets.” Merrill Lynch recently created an index not only to track them, but for investors to buy and sell them.

Frontier markets include Pakistan, Kuwait, the United Arab Emirates (UAE) and other markets throughout Africa and the Middle East. They also include Vietnam, Kazakhstan, Cyprus and others. They are individually too small for institutions to invest in, but cobble them together in a new index that allows you to buy and sell the basket and… well, then you have something.

Merrill Lynch’s new Frontier Index tracks the 50 largest companies in 17 frontier markets. Even so, the market value of all these companies combined is only about $330 billion – or about that of General Electric. Right now, the index heavily tilts toward the Middle East, with 50% of the index in the region. Asia is the second largest component, with 23%, followed by Europe at 14% and Africa at 13%.

As for industry groups, banks usually are among the biggest companies in any emerging market. So banks and financial service companies represent about 65% of the index. Oil and gas is the next largest sector, weighing in at 13%. As far as countries go, the top three are the UAE (23%), Kuwait (18%) and Pakistan (14%).

So far, these frontier markets have lived up to their advance billing of not following the broader markets. Since Sept. 30, for example, the frontier markets actually gained 31% while the broader market lost ground. Merrill Lynch backtested the index several years and found that between February 2000-December 2007, the index return’s correlation with the S&P 500 was only 32%. Basically, that means that about two-thirds of the time, the frontier markets zigged while the S&P 500 zagged.

I love the idea of frontier investing, because I’m an optimist when it comes to global trade and booming overseas markets. Maybe it’s my globe-trotting that’s skewed my view. But when I travel overseas, I see great opportunity. I see people building businesses. I see the impact of global market forces on local energy, food and resource markets. I see the world getting smaller.

I’m long-term bullish on markets such as the UAE, Kuwait, Vietnam and others. But I also realize that the ride in some of these markets will be absolutely gut-wrenching. Just look at Vietnam.

The Vietnamese economy is growing somewhere between 7-9% per year. It is a cheaper place to do business than many other parts of Asia. Hence, Vietnam continues to attract a strong flow of investment.

While I liked what I saw going on there, I found no direct investment ideas for us. The market is just too small and illiquid. Heck, before March 2002, the market traded only on alternate days. Moreover, as with most of these frontier markets, Vietnam suffers from poor disclosures and low transparency. When you invest here, you’re really not sure what you’re getting.

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I remember listening to Carlo Cannell, a very good investor at Cannell Capital, talk about his trip to Vietnam and his investments there. This was back in May 2007. The theme was investing in the dark. In Vietnam, he basically made many blind bets on lots of companies, figuring enough of them would work out.

But the market has tanked since then.

Perspective, though, is everything in markets. That chart looks nasty, with a near 50% drop from the high in less than a year. But as recently as July 2005, the index was only 250. You’d still have more than doubled your money in less than three years. In 2000, it was only 100. Investors are still up sixfold from 2000, which is a lot better than an investment in the S&P 500 Index. And that’s really the key to the whole frontier market idea. As an investor, what’s most important is what happens over the years.

I’m skeptical of the idea of frontier markets as an “non-correlated asset” for all seasons. Links between these small markets and their bigger brothers are probably stronger now than in the past. Vietnam, for example, depends heavily on foreign investment. Vietnam’s currency, the dong, is still linked with the dollar. So we have to be careful in taking the past and saying the future will work the same way.

What Has Really Changed?

Bill Bonner — Thu, 05 Jun 2008 19:40:42 +0000

What has really changed?…importing inflation…hoping to prove Friedman wrong…Can the U.S. central bank really begin fighting inflation in a serious way? Ah, dear reader – there’s a cruel twist to this story…The cure for high prices is high prices…and so the global economy lurches forward…and more!

“What’s different?” asked colleague Manraaj Singh at this morning’s conference.

Early every morning, while most Americans are still in their beds, your editor joins a group of analysts and financial journalists to discuss the day’s news.

“What happened to the price of copper? Why are Asian stocks going down? Are they really going to cut rates today?” The answers are not always satisfying, but the questions keep coming.

And the question this morning was: what has really changed?

U.S. stocks held steady yesterday, but they’re down 5% so far this year. The dollar held steady yesterday too, but it is down for the year too – about 6% against the euro and the yen. The Europe- or Japan-based stock market investor has lost more than 10% of his money.

Meanwhile, the fall of the dollar has increased prices for imports. While the United States used to “import deflation” from Asia and elsewhere, now it imports inflation. Prices are rising all over the world.

Yesterday, European producer prices were reported rising at 6.1% per year. High prices have caused the biggest drop in retail sales on record. And yesterday, they had to call out the riot squad in Brussels, to battle fishermen who were kvetching about high fuel costs.

In China, retail prices are rising at an 8.5% rate – the fastest in 12 years.

In Russia, prices are going up at a 14.39% rate.

In Vietnam, the consumer price inflation rate is running at 25%.

In Venezuela, the inflation rate is 29%.

And in Zimbabwe…well, Zimbabwe is another story altogether, with inflation going up so fast they can’t even measure it. Prices are said to be increasing at 160,000% to 200,000% per year. But who can tell? There’s nothing to buy.

Back in Asia…the region’s central banks had hoped that Milton Friedman was wrong. They had hoped that a worldwide economic slowdown would reduce domestic inflation rates. So, they left their lending rates low – considerably lower than the CPI – in order to keep their economies turning over. In Thailand, for example, the central bank lends at 3.25%, while consumer prices rise at more than 6%.

Sound familiar? The United States also keeps its key-lending rate well below the inflation rate – and for the same reason. The Fed lends at 2%. Inflation was last clocked running twice as fast.

We pause here in honest admiration for our fellow investors – the kind of admiration we feel for members of a bomb disposal unit, or a knife-thrower’s assistant. What are we to think? They are lending money to world’s biggest debtor – the U.S. government – for 10 years at 3.94%. That’s yesterday’s yield on the 10-year T-note. If nothing changes, they will get nothing for their trouble. If inflation rates rise (or just happen to be understated), or the dollar falls, the speculation will blow up in their faces.

But along comes Ben Bernanke, with an apparent change of brain. Now, says the captain of the Fed’s rapid response recession-fighting team, further inflation is unwelcome in the United States of America. Supposedly, these words alone took $5 off the global oil price.

But what really has changed? Can the U.S. central bank really begin fighting inflation in a serious way?

The feds have discovered the same two things that their Asian central banker colleagues have found out: that the globalization street goes both ways…and that Milton Friedman was right. Inflation is a monetary phenomenon, observed Friedman. When you increase the amount of money in circulation, ceteris paribus, prices are going to go up. That they didn’t go up much in the last 15 years is merely because there were important other trends going on – notably, globalization, which was driving down prices. But now, traffic on the Avenida de Globalization is going in the other direction. And just as it was very difficult to cause inflation while globalized markets were cutting prices, so is it very difficult to stop inflation when globalized markets are increasing them.

*** Can the Fed really begin fighting inflation? Ah, dear reader…do you see the cruel twist to the story?

While the Fed couldn’t seem to create inflation in those wonderful years of the Great Moderation…now, it probably can’t do much to stop it. The U.S. imports an Everest of stuff from overseas. And stuff made overseas is becoming more expensive. The Fed can raise rates to try to cool the U.S. economy and reduce the amount of stuff Americans buy. But those darned Asians and Europeans can still buy more, and prices can still go up.

Besides, any further ‘cooling’ of the U.S. economy is risky. It could freeze up.

The crisis is said to be over on Wall Street. But the Financial Times says new IPOs are being taken off the schedule…short action on Lehman Bros. is at a record level (speculators are betting that the company is going down) and Moody’s says it might downgrade credit ratings for MBIA and Ambac.

The money just isn’t flowing as fluidly in Manhattan as it used to. An AP story tells us that apartment sales were off 21% in the first quarter. And over on Long Island, where the Wall Streeters have their weekend homes, lenders are said to cutting off home equity lines.

In the center of the country, bankruptcy filings are up 27% in Illinois. And out in Las Vegas, the mortgage fraud capital of the world, a $5 billion casino project has just been cancelled.

And this just in – California is officially suffering a drought.

Under these conditions, we’d expect Ben Bernanke to make some gestures toward protecting the dollar and reducing inflation. But we’d also expect that most of the air coming from the Fed will be hot, not cold.

“The Fed seems to be trying to create a situation whereby they are seen to be fighting inflation, simply by not lowering rates any further,” says MoneyMorning. “This is because, while the Fed may have no interest in fighting inflation, they have a big interest in fighting what they call ‘inflationary expectations’. In other words, they are more interested in fighting people’s perception of the problem, rather than the problem itself.

Asian Markets Oversold! Buy Vietnam ‘Now’

Manraaj Singh — Tue, 03 Jun 2008 19:18:41 +0000

Short-term speculators are selling Asian stocks in their droves. No more so than in my favourite market of them all: Vietnam.

Does mean the end of the great emerging markets trend?

On the contrary, here at Profit Hunter we believe it presents you with an even better chance to buy.

As short-term traders pile out of Vietnam, we seriously recommend canny long-term investors PILE IN.

And we’ve uncovered the perfect way to play…

Like a slingshot, Vietnam is pulling back. Be ready when it goes off

See, we regard Vietnam as the “sling shot” economy of the next 20 years.

“Slingshot” is the term we use to describe a hitherto ignored market.

A market that takes off suddenly and rapidly after attracting a raft of state, domestic and international investment…

True to form, Vietnam pulled-in $15 billion in foreign funds last year alone.

“Slingshot” markets tend to emerge in developing countries where there has been major economic reform, a relaxing of market controls and a year-on-year increase in GDP…

Vietnam is experiencing all these in abundance.

We saw exactly the same global economic shifts in China and Russia 5 years ago.

That’s why the recent volatility in Vietnam’s performance only strengthens our view that the “slingshot” is being pulled back even more. When it comes off, we see carefully positioned investors making a packet!

But before I reveal this exciting opportunity, let me explain why the Asian markets are taking a breather, and crucially, why it won’t last forever…

Vietnam is a victim of its own success

As we’ve seen, its dazzling economic performance has attracted an unprecedented level of foreign money.

But that tide of money has had some unintended side effects: It has led to too much liquidity in the financial system, and that’s fuelled inflation.

Right now, inflation in Vietnam is running at 25.2%. And it’s spooked a lot of short-term foreign investors.

With Western markets reeling in the wake of the credit crunch, Asian markets suffer as international profit seekers lose their appetite for riskier investments.

Now there isn’t much Vietnam’s government can do about that – but what it IS doing is taking real measures to tackle inflation.

Last week, it raised interest rates from 8.75% to 12%. And I believe they will have to go higher before they have a positive impact. But it’s an important first step.

Not only that, it backs-up an important point we made when we first recommended investing in Vietnam on 3 July last year: This is a country where the government is willing to sacrifice short-term growth to ensure the long-term development strategy remains on-track.

And that’s precisely what you need to look for when you’re investing in a macro growth story like this one.

Buckle-up and hold on for the ride

Short-term speculators may be tempted to bolt for the door. But long-term investors’ interest in the country has actually been rising…

The country received foreign investment pledges of $15.3bn between January and May this year. That’s more than double what it received in the same period last year.

And it underlines our optimism for the country’s growth prospects.

Right now, Vietnam is the most oversold market in the world.

After the recent falls, its market is trading on a price-to-earnings ratio of just 11, which makes this market dirt cheap.

In other words: It’s a screaming buy.

If you aren’t already in it, you ought to be.

Our advice is to get in now, buckle-up and hold on for the ride!

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: Asian Markets Oversold! Buy Vietnam ‘Now’

Asia’s Markets Bottomed Out!

Manraaj Singh — Thu, 22 May 2008 14:08:03 +0000

Hedge fund managers are piling money into Asian markets. It proves something we at Profit Hunter have believed for months…Asia has bottomed out!

We now believe Asia’s markets are poised for a rebound and this could be your last chance in the foreseeable future to get in on the ground floor.

Right now I’m scoping two stocks that could be about to cut the mustard!

They’re not buys yet… but one of them could be any day now.

The best move you can make

We’ve been sitting tight on our positions since the beginning of the year instead of charging back in at the first sign of an apparent rebound.

It was the right move.

Most of them proved to be dead cat bounces, and the irrational optimists who got in too early have gotten burnt.

The average Asian hedge fund has seen a loss of 5.6% since the beginning of the year… and that’s with the advantage of every possible trading strategy available to them!

The sharp falls we saw in most Asian markets went beyond what can be economically justified. A lot of it was driven by hedge funds being forced to liquidate portions of their portfolio. Investors panicked and began withdrawing money from the funds… banks and brokerages hit by the credit crisis refused to lend to them.

So hedge funds were forced to sell shares to meet margin calls or to reduce their exposure.

In fact, the amount of money invested in Asia-focussed hedge funds fell by 10% in the first three months of this year…

But the investment case for Asia remains intact.

What I’m waiting for is a change in sentiment and the evidence for that is growing. And it’s growing fast!

You see, what worked on the downside should work on the upside too. The re-entry of the hedge funds could give the region a boost.

Here’s one move you can make before they do!

So, if you’re willing to ride-out the short-term turbulence, this is a good time to get into Asia.

Vietnam remains my favourite market in Asia — in fact my favourite way to play this phenomenal trend is listed right here in the UK. You can access all the details here.

But right now, markets everywhere are having a rough time. Asia and Europe have been falling for the last three days. They’re jittery over the surging price of oil. It hit a new record of $135 this morning. We can almost see OPEC President Chakib Khelil, smiling smugly… he’s predicting $200 oil.

Auto makers and transport companies have been having the worst of it. The airlines are ripping their hair out.

In Asia, we’ve seen the price of jet fuel shoot up by more than 50% since the beginning of the year!

Why we like the higher oil price

Shipping companies have taken a hit as well.

Investors are worried that higher fuel prices may dent profits.

We aren’t complaining though. We’re bullish on Asian shipping companies because the credit crunch has led to a slowdown in the number of new ships being built.

That’s obviously good news for the existing shipping companies and we’ve been running the rule over several of them.

But top shipping companies saw their share prices jump after that report on falling ship orders hit the mainstream financial press. So, we’re excited that the latest jitters over the oil price could bring their share prices back down to levels that we find exciting.

We’ve now whittled that down to two fantastic companies.

But we would like to see further falls in their share prices so that the potential impact of rising fuel costs is fully priced in. They’re both fantastic companies, but only one is going to make the cut.

In the meantime, check out our Vietnam opportunity right here and be ready when I give the signal to buy one of these incredible shipping stocks.

Regards,

Manraaj Singh
Editor Profit Hunter

Source: Asia’s Markets Bottomed Out!

Can We Contain the Global Inflation Crisis?

Merryn Somerset Webb — Mon, 19 May 2008 13:58:09 +0000

Amidst all the furore regarding the Labour administration’s embarrassingly mis-managed tax shortcomings, the cries of those in the UK warning of a growing humanitarian crisis in the developing world have been lost.

Rising raw material prices, in particular rising food prices, are now causing real hardship and what represents a cause for shoppers in developed economies to grumble is a matter nothing short of life and death for the millions less fortunate around the world. This note considers what many emerging countries are doing and why their actions, far from alleviating the problem, are actually making matters worse.

Lord Mark Malloch Brown is a junior minister in the current Labour administration. He has a reputation for being forthright and often puts his colleagues’ hackles up. He is also the former deputy secretary general at the United Nations and an acknowledged authority on global issues of critical concern. His recent comments regarding the growing food crisis are significant both because he has identified some of the root causes and because he has taken steps to raise the matter where some of his more craven colleagues dare not.

Lord Malloch Brown describes, somewhat unoriginally, the confluence of factors he sees as serving to cause food prices to rise as a “perfect storm”. These factors are: a series of poor harvests in Australia, the incremental demand for improved diet caused by the newly prosperous parts of China and India, coupled with the now wide-spread process of biofuel “flag planting” on land previously devoted to the production of food stuffs. We would add a few additional factors, on which more below.

Bang on cue, the United Nations secretary general Mr Ban Ki-moon has warned that, if allowed to escalate, permanently higher food prices could not only damage global growth but also, possibly, global security too.

Rightly, the secretary general has stuck to the UN’s remit by indicating that an environment that has seen wheat prices double and the price of rice explode higher could seriously put back the process of global poverty elimination. “If not handled properly, this crisis could result in a cascade of others (including the imposition of quotas and the banning of exports) and become a multi-dimensional problem affecting economic growth, social progress and even political security around the world”.

The biofuels debate is interesting from a number of angles. Firstly, it is not absolutely true to say that the commitment of land to the production of biofuels automatically reduces food production everywhere (although that hardly makes the European Union’s full-on encouragement of plant-derived fuel right).

Supporters of biofuels tend to use the Brazilian experience as justification for the dash to plant-derived fuel alternatives, not that that country’s success should detract from the fact that there are a lot of other places where land which would otherwise have been used to grow food for human consumption has now been given over to the production of biofuel to feed machinery!

The EU could, for example, call a halt to its pre-announced intention to derive 5.75% of petrol and diesel to be manufactured from plants, although we understand the EU’s difficulties given growing stresses in the oil market too.

The developed world has hardly covered itself in glory on this matter either. In particular legitimate questions might be asked of Western countries’ commitment to what has become known as the “Washington Consensus”. Part of the reason why a number of African countries are now back on the verge of starvation is that developed nations, through their International Monetary Fund (IMF) conduit, actively encouraged many African governments to cut farming subsidies and focus instead on producing cash crops for export and by so doing, open up their previously closed economies.

That the plan has backfired is made obvious by the fact that many countries are now struggling to grow sufficient to meet basic levels of domestic demand. Whilst the UN falls back on its World Food Programme to raise sufficient funds to feed starvation zones, what is really required is greater research and development, improved credit facilities and ultimately a “green revolution” similar to that which took place in parts of Asia, not that the Asian experience is without its own pressure right now.

From the point of view of global economics there has always been a gulf between the “haves” and the “have-nots”. Generally speaking, the larger a country is, the greater the likelihood that it will be richly endowed with natural resources. The fact that not even the largest countries are so well endowed in every scarce resource is reflected in the fact that imported inflationary pressure has become a global issue. Indeed, some of the world’s largest and most populous countries are those with the greatest dependency on imported raw materials.

Estimated top global countries by resource production

The chart shows resource wealth, calculated using the most recent production data for energy, basic resources and agricultural products using average prices achieved over the previous quarter. Against this is plotted a countries’ wealth on a per capita basis, to show that some countries are likely to benefit significantly more than others. On this basis, Saudi Arabia, Canada, Australia and Russia stand out. The second chart (below) compares the global share of a country’s estimated resource wealth against its share of global population.

Vietnam, a Better Investment Than China?

Manraaj Singh — Tue, 13 May 2008 18:36:57 +0000

This emerging Asian economy is better value for big business, labour costs are cheaper… and huge investments are flooding in… here’s why…

If you missed out on China three years ago… don’t worry there’s a second bite of the cherry coming around. China and scores of other countries are outsourcing to Vietnam on a grand scale… and foreign investment is pouring into the country at a rate of knots… so much so that the Vietnamese economy looks set to take off as fast as China’s did… let me explain…

China sucked in more than 65% of the $792 billion in investment received by 21 leading Asian economies over the past five years. About 90 per cent of that money went into China’s coastal southeast region, which accounts for 60 percent of the country’s total exports. Growth is concentrated mainly in four provinces on China’s south-eastern coast: Guangdong, Jiangsu, Fujian and Zhejiang.

But the rest of China hasn’t shared in this bonanza. Incomes in western China’s poorest regions are one-tenth those of the richest areas on the east coast. That’s helped to double average monthly pay in the Dongguan city, China’s largest manufacturing centre, from 1,284 yuan in 2001 to 2,594 yuan in December 2006.

That growing income gap has been made the Chinese government extremely nervous – the last thing that they need is 700 million angry prols and peasants…

So, to help encourage investment and narrow the disparity, the comrades in Peking launched a “Go West” policy in 2000, to encourage manufactures to move inland. They’ve spent over $140 billion trying to put the major infrastructure in place to make that happen. They’ve built highways, airports and hydropower stations. But it just doesn’t seem to be enough.

Even with the improvements, power failures, substandard roads and congested railways reduced production in 2004 by 9.5 percent in the south-western city of Kunming. In coastal Shanghai, they cost only 2.3 per cent. So manufacturers aren’t really thrilled by the idea of “going West.” Instead, more and more of them are going South…to Vietnam.

Vietnam trounces China into the ground…

Of course, Vietnam isn’t just doing well because of China’s woes. It’s been making great strides of its own on just about every front. The country has been aggressively luring low-cost industries and it’s paid off massively.

Vietnam received $40.1 billion in pledged investment during 2007 – that’s up a whopping 354% from five years ago. And it absolutely trounces the $11.9 billion that foreign companies announced they plan to invest in central and western China last year. That’s just 30 per cent more than the $8.9 billion in planned investment that they announced in 2003.

And ever since they joined the World Trade Organization in 2007, they have had greater access to world markets. Last July, PricewaterhouseCoopers ranked Vietnam as the most competitive destination for manufacturing businesses among the world’s top 20 emerging markets; China was second.

This doesn’t mean the end of China’s economic miracle. The Asian giant has been increasing its production of higher- value goods — computer chips, electronic gadgets, automobiles. China’s exported about $47.6 billion of high-tech products last year and they now make-up 28.5 percent of total exports. That’s up by 412 percent since 2002.

But the country is losing its ability to compete at the lower end of the manufacturing industry. And that’s opening up a brilliant opportunity for Vietnam. Because it’s not just international companies that see better value in Vietnam – even Chinese manufacturers are considering relocating to stay competitive.

Ray King, export manager at the Zhejiang Hefeng Shoes Co., which employs 1,000 people says “Customers say our prices are crazy…They always say other suppliers in Vietnam and Thailand are cheaper.” So now he’s thinking of relocating to Vietnam. And he’s far from alone.

In fact, a third of the manufacturers in Guangdong province – which produces 30% of China’s exports – will be closed in three years as they relocate to surrounding Asian countries according to a report by merchant bank Credit Suisse two weeks ago.

China passes new law that guarantees Vietnam’s advantage…

A big part of Vietnam’s growing advantage over China is its lower wages. Vietnam’s labourers earn an average of $104 a month. That’s 41% less than what China’s lowest-paid workers in the central province of Jiangxi make.

And China has passed a new labour law that practically cements Vietnam’s advantage. The law requires companies to pay minimum wages and severance pay and it has helped drive up the cost of labour in China by 22% over the last year.

The era of cheap goods from China is coming to an end – and fast. It isn’t going to be long before “Made in Vietnam” becomes as ubiquitous as “Made in China” is today or “Made in Japan was in the 80’s.

How can you profit from this?

Given the massive windfall that Vietnam is set to reap, we think that it’s a brilliant time to buy into this growth story.

As with every emerging economy – it is vital to not only get in at the right time… but to invest in the best way to make maximum profits…

Over at Profit Hunter we believe that we’ve found the best way to do this… find out what this is right now…

Regards,

Manraaj Singh
Editor
Profit Hunter

The Run on Rice Wears Thin: A 20% Correction Could Be in Store

Jason Simpkins — Thu, 01 May 2008 12:03:46 +0000

The price of rice finally started to moderate this week, with rice futures sinking for a fifth straight day. Rice has retreated 11.6% on the Chicago Board of Trade since hitting an all-time high last Thursday.

But this decline is likely just the start for rice prices, which have been artificially inflated by government controls and may continue to plummet by as much as 20%.

Rice – which supplies one-fifth of the world’s calorie intake – really began its journey skyward last October, when India banned exports of non-basmati rice to protect the wildly popular grain from succumbing to inflationary pressures. Later that month, India eased the ban, but reapplied it last March.

Faced with civil unrest brought on by rising food prices, other countries have been following suit. In just a few months…

India banned exports of non-basmati rice after inflation hit a 14-year high.
Egypt, which typically brings 1.4 million metric tons of rice to the world market each year, banned exports from April 1 to Sept. 30.
Vietnam, after curtailing exports in March and April, extended a ban on rice sales through May.
Brazil suspended rice exports, approximately 313,000 metric tons a year, in an effort to maintain price stability.
Indonesia suspended exports of medium-grade rice exports to combat inflation.

The price of rice doubled, and in some cases tripled, in the first four months of 2008, according to BusinessWeek. U.S. long grain rice jumped from $400 a ton to $800 a ton. Indian Basmati rice soared 182% from $850 a ton to $2,400 a ton. And Thai jasmine shot up from $559 per ton to $1,125.

But the price surge had little to do with supply and demand. Instead, experts pointed to the protectionist measures by rice producers.

“The primary reasons for the recent price spike in rice are due to export bans and restrictions by several major exporters globally that have tightened supplies in the global market,” Nathan Childs a rice specialist at the U.S. Department of Agriculture told Voice of America. “Overall though, the 2007-2008 rice crop is the largest on record and supplies are up a little bit from a year earlier.”

Only 7% of global rice production is traded internationally, which means any government intervention in the export or import markets could have a dramatic impact on rice supply and prices. Traders, millers, wholesalers and retailers also began hoarding supplies to see how much higher prices would go. A weak U.S. dollar and higher costs for fertilizer and shipping also contributed to the rise.

Speculation among investors and consumers has run rampant in recent months, adding to political and economic pressures. As the run-up in commodities price steepened in the early part of the year, driving the price of corn and wheat to all-time highs, traders on the Chicago Board of Trade dove head first into the volatile rice market. Rice futures have gained slightly less than 80% in the past year as a result.

“We have enough food on this planet today to feed everyone,” Adam Steiner, head of the U.N. Environment Program told the Associated Press, adding that the way that access to that food is being distorted by perceptions of future markets is distorting access to that food.

“Real people and real lives are being affected by a dimension that is essentially speculative,” Steiner said.

However, the market has begun to turnaround this week, with rice prices falling 11.6% from its April 24 peak.

The drop accompanied news that Vietnam would produce enough rice to meet demand from exporters, as well as local consumers. The country also banned speculators from its domestic market.

Also, Thailand has announced it will release 2.1 million tons of rice from the state’s stockpiles for sale to the public to ensure that consumers pay moderate prices for the grain for the rest of the year.

Thailand is the world’s leading rice supplier and has repeatedly assured the public that it would not curb exports despite speculation to the contrary. The nation produces 18 to 20 million metric tons of milled rice each year, of which 9 million is consumed at home. The rest is exported.

Thailand has committed to the export of 8.75 to 9 million metric tons this year and remains confident it can meet that commitment, Reuters reported. In addition to causing a worldwide panic, going back on its word and imposing export curbs would be political suicide for the nations current governing party, which came into power largely on its populous farmer support. Almost half of Thailand’s 65 million people are involved in agriculture, which accounts for 11% of the nation’s GDP.

“I believe the government will not betray farmers who voted for them by imposing any export restrictions, which would cut export demand and adversely affect domestic prices,” Paka-on Tipayatanadaja, a rice analyst at Kasikorn Research in Bangkok, told Reuters. “Farmers invested a lot to grow more rice after the government said it has to plans to curb export. The government has no chance to reverse the policy now.”

Thai jasmine rice is one of the most popular types of rice in the world. U.S. imports of jasmine rice have jumped by 78% over the past ten years. One shopper outside a San Francisco Costco Wholesale Corp. (COST) stores told BusinessWeek that Thai jasmine rice was “the priced one, because of its smell.”

The price of the fragrant rice has benefited greatly from the bullish rice market as its price has more than doubled. As they did so, American shoppers and restaurant owners began panic buying the popular scented rice prompting wholesale clubs like Costco and the Wal-Mart Stores Inc.-owned (WMT) Sam’s Club to limit customers’ purchases.

Fortunately for jasmine rice fans, it’s likely that the price of all Thai rice will continue to ease next few weeks, possibly by 20% according to the secretary general of the Thai Rice Exporters’ Association.

“The market is likely to correct up to 20% even if the bans by India and Vietnam remain,” Korbsook Iamsuri, who is also managing director of Kamolkij Co. Ltd., told Reuters.

The benchmark Thai 100% B-grade white rice was quoted between $1,030 and $1,050 per metric ton, slightly below last week’s record of $1,080 per metric ton, Korbsook said. If she’s right, the price could adjust to $864 by mid-May. And if the price of Thai rice drops, it’s likely others will follow suit, as Thailand – which accounts for nearly a third of the global rice trade – is typically the standard bearer for global rice prices.

If rice prices persist at record levels, most experts expect that consumers will overcome cultural loyalties and switch to medium grade rice, like that grown in California and Arkansas. California will harvest approximately 4 billion pounds of rice this year, 40% of which will be exported. While it’s not as popular as its Asian counterparts, California rice has experienced a price jump of its own. According to the San Francisco Chronicle, California growers will get $20 per 100 pounds of rice this year, double the 2007 price. As a result the amount of rice being planted in the region is on the rise. Rice has been planted on an estimated 549,000 acres in California this year, up from 534,000 acres in 2007.

The Globe’s Exporters Close Their Doors

Andrew Snyder — Thu, 17 Apr 2008 12:02:01 +0000

It may be the twenty-first century, but this planet still faces some major food issues. We could be in for some tough times.

I am hungry, but I cannot afford to eat. Sure, I say that now because I am scrimping for a wedding, and more importantly, a honeymoon in 31 days, but I may not be able to use that excuse for long. Soon, all of us could feel the pain. And I am not talking about the pain of married life (I have been hearing a lot about that).

Over the last month, food-related riots have broken out all across the globe. Because of soaring demand and a lowered supply, food prices are sky-high and folks are fed up (pardon the pun). It looks like the problem is about to get worse.

No soup for you

Just yesterday, one of the nation’s largest grain producers announced it is forced to cut off its exports to the rest of the world. With food prices soaring within its borders, Kazakhstan (the fifth largest wheat exporter) wants to ensure its people can afford to eat before it feeds the rest of the world.

By propping up local wheat supply, Kazakhstan hopes to lower the prices its citizens have to pay. Unfortunately, the reduced global supply will push wheat prices even higher for the rest of us.

The story is even worse in the rice markets. Indonesia was the latest country to ban rice exports. It joins India, China, Vietnam, Egypt, and Cambodia. It is no wonder rice prices soared to set new records. Instead of getting the global expansion so desperately needed, the world’s markets are contracting.

Unfortunately, the United States and its import-everything mentality will feel the brunt of the pain. Need proof? How about a dollar that is weaker than a five-year-old Girl Scout.

Over the past year, the nation’s food prices are up by 4.4%. Unfortunately, the inflation is just beginning. With export bands, soaring demand thanks to bogus alternative energy political agendas, and a burgeoning population, the price you pay for a loaf of bread today may look like a fantastic deal this time next year.

Oh, ship!

So how can you profit from this global crisis? Unless you are willing to plant wheat in your front yard and turn your swimming pool into a rice pond, you will have to turn to the equities market. Right now, your best bet is to take a short position on the nation’s dry-bulk shippers.

Over the last month or so, the share price for many of these carriers has gained a few extra points. Wall StreetWall-Street-Layoffs was excited about a few analyst upgrades and the return of growth in the steel and coal industries. But a reduction in wheat and rice exports is going to put an end to the party.

The bans may be temporary, but they cast an unforeseen shadow over future earnings. Wall Street hates anything that was not predicted.

Two of the most popular dry-bulk investments are DryShips (DRYS:NASDAQ) and Eagle Bulk Shipping (EGLE:NASDAQ). Take a close look at September 2008 Calls that are close to being in-the-money. Thanks to the recent bullishness, they are selling at a discount. It won’t stay that way for long.

It may be the twenty-first century, but this planet still faces some major food issues. We could be in for some tough times.