With Asia at new highs every week it was not a surprise when a client recently came to us asking where might be a good place to invest in Asia. Here are some of the things that we look for in potential investments.
Looking over different countries we give a lot of weight to the interest rate environment. Most of the countries in Asia currently have rising interest rates. China, Hong Kong, and South Korea being notable examples. Singapore on the other hand has had stable and low rates for a while now. Another trend right now worldwide is that almost half of the 45+ countries we track have inverted yield curves. Asia is an exception to that as well with only Indonesia and Hong Kong having inverted rates. Needless to say Singapore does not have inverted rates.
The next big factor that we look at is the stock index trend. We don’t fight the trend. Falling knife syndrome has been known to cause huge losses and we just aren’t into that. Looking at the EWS chart it is in a definite uptrend and while it is not at the start of the trend as long as other conditions are favorable such as monetary trends, valuations, etc. we will look to buy on pullbacks and consolidations.
Another major factor in the fundamentals of a country is if it has surplus or deficits. Twin surpluses are good and twin deficits are bad. Singapore is a twin surplus country. Unfortunately the United States is a twin deficit country.
Valuations come into play especially on a relative basis. We look at P/E, P/S, and P/B ratios. In this case the P/E of the EWS is 16.29 versus the SP500 P/E of 17.67. We like it when the country is valued at or below the SP500.
We also like good news about the country. Not things like “XYZ index next stop 1,000,000 but positive things about its business environment and other positive influences. Here is one such positive for EWS Singapore is ranked the easiest country in the world to start a business.
While we look at several other factors we feel these are the most important. If there is anything that you would like a sample of feel free to e-mail us at Editor@TheMacroTrader.com
The Macro Trader