Asia Still Drives Growth

5/7/2012


Asia's growth spurt has partially buffered corporate earnings from economic malaise in the U.S. and Europe, giving multinational companies a bigger windfall than any bailout Congress could cobble together.

Indicators signal continued, albeit slower, growth in Asia. Tentacles from Europe's debt crisis threaten to stifle export growth and smother internal investment as euro-zone banks cut back on cross-border lending. The International Monetary Fund expects developing Asian countries (including China, India, Indonesia, Thailand, Malaysia, Philippines, and Vietnam) to grow gross domestic product about 7% in 2012, impressive relative to the rest of the world, though down from 8% last year and 10% in 2010.

ECONOMIC GROWTH
------ Estimated ------
Region
2010
(%)
2011
(%)
2012
(%)
2013
(%)
Central and Eastern Europe
4.5
5.3
1.9
2.9
Developing Asia
9.7
7.8
7.3
7.9
European Union
2.0
1.6
0.0
1.3
Latin America/Caribbean
6.2
4.5
3.7
4.1
Middle East/North Africa
4.9
3.5
4.2
3.7
Sub-Saharan Africa
5.3
5.1
5.4
5.3
U.S.
3.0
1.7
2.1
2.4
World
5.3
3.9
3.5
4.1
Source: International Monetary Fund.

In the December quarter, the confluence of weaker business sentiment and higher interest rates slowed growth in India and other Asian economies, according to the IMF. Nevertheless, India's real gross domestic product grew 7% last year, a rate it is expected to maintain in 2012 and 2013. In China, GDP growth is projected to slip to 8% this year from 9% in 2011. Investors should note that China has enjoyed an extended lending boom, and a wave of sour loans could batter banks, which themselves have aggressively tapped debt markets.

China's income per capita, currently about $4,000, could reach $16,000 by 2030, says the World Bank, roughly the equivalent of adding 15 South Koreas to the world economy. Rising incomes are powering consumption. China now outpaces the U.S. in activations of smartphones, and the retail grocery market is projected to grow 11% from 2012 to 2015, nearly triple the estimated 4% gain in the U.S.

Trans-Pacific winds

Last year, flooding in Thailand and earthquakes in Japan showed how entangled U.S. companies are with the rest of the world, as many multinationals posted lower-than-expected sales and profits in the wake of those disasters. The table below lists recommended stocks that generate more than 45% of sales outside of the U.S. and at least 6% from Asia. Predictably, the table skews heavily toward tech, though Asia is crucial for other sectors as well.

The region's economic growth spurs demand for coal and iron ore, benefiting U.S. miners and railroads such as CSX ($23; CSX), which transports raw materials to shipping ports. Meanwhile Chevron ($108; CVX) has secured contracts with major utilities in China, Japan, and South Korea to supply liquefied natural gas from Australia.

RECOMMENDED STOCKS SELLING TO ASIA
Int'l
Sales
(% Of
Total)
Revenue From
---- Asia And Japan ----
Quadrix
Overall
Score
Company (Price; Ticker)
Billions
($)
% Of
Total
Sales
Abbott Laboratories ($62; ABT)
59
2.34
6
81
Aflac ($46; AFL)
75
16.63
75
84
Agilent Technologies ($43; A)
69
1.74
26
88
Apple ($582; AAPL)
61
12.47
12
100
Cisco Systems ($20; CSCO)
47
6.60
15
93
Dover ($63; DOV)
49
1.50
19
83
EMC ($29; EMC)
47
2.64
13
93
IBM ($208; IBM)
65
10.97
10
81
Intel ($29; INTC)
84
35.75
66
97
Jabil Circuit ($23; JBL)
86
5.45
33
91
KLA-Tencor ($52; KLAC)
81
2.22
70
94
Qualcomm ($64; QCOM)
97
11.35
78
82
St. Jude Medical ($39; STJ)
53
1.06
19
74
Note: Quadrix scores are percentile ranks, with 100 the best.

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