After all of the carnage in Chinese stocks this summer, some of you are probably patting yourselves on the back for avoiding China – and the rest of the Asia-Pacific region, for that matter.
But if you followed my strategy for these markets, you’d be pleased as punch and out of China after a 100% gain in the last year.
You see, in early 2014, Chinese stocks were dirt cheap, ignored and even hated with a passion by most investors. But as soon as an uptrend began to form, I recommended that investors begin buying.
In just over a year, this momentum-driven market was up over 125%.
I don’t know if this was a bubble. But my rule of thumb is to sell half of any position up 100% in a year and then place a 15% trailing stop-loss to protect the balance of my hard-earned gains.
This value-driven, disciplined strategy is the best way to play all emerging and frontier markets.
Another key is flexibility. Don’t be like many investors, who, when they hear “Asia,” can only think “China.” There are so many other opportunities in this dynamic, fast-growing region.
One example is Southeast Asia – 10 countries comprising more than 600 million youthful consumers hungry to catch up with the West. Many of these countries have substantially lower manufacturing wages and, in the last year, Southeast Asia has attracted more investment capital than China.
So where should you invest right now?
I would take a good look at Hong Kong. This territory is trading at a sharp discount to Chinese stocks and is going after many of the same markets.
Focus on Value and Quality
Why not begin with the bluest of blue chips? Jardine Matheson (JMHLY) is what I call the Berkshire Hathaway of Asia. Founded in 1832, the company is incorporated in Bermuda but headquartered in Hong Kong. About 40% of its profits are from greater China, with 47% from Southeast Asia.
Jardine is basically a conglomerate with deep tentacles in a variety of stable and growing consumer businesses. It has a pristine balance sheet and well-connected executives. And it also happens to be trading at a roughly 30% discount to net asset value. Its stock also offers a 2.6% dividend yield.
Here’s a quick overview of this conglomerate’s key businesses:
Dairy Farm is a leading pan-Asian retail group, although Hong Kong remains its biggest market. It owns both the leading supermarket and the leading health and beauty chain.
Other Hong Kong operations include: the 7-Eleven convenience store chain, IKEA furniture stores, and a 50% interest in Maxim’s (which operates the Starbucks franchise in Hong Kong).
Hongkong Land is one of Asia’s largest property companies. It owns large amounts of prime commercial property in the heart of central Hong Kong, where its buildings form an interlinked network of offices and retail space.
Jardine Cycle & Carriage is a Singapore-listed holding company. Its main asset is a 50.1% shareholding in the separately listed Astra International, a large Indonesian conglomerate.
Mandarin Oriental owns and manages luxury hotels. It currently owns or has substantial interests in 15 hotels worldwide.
Jardine Pacific is a holding company for Jardine Matheson’s non-listed Asian businesses. These cover a wide range of industries and include a number of associates and joint ventures.
Jardine Motors operates car dealerships in Hong Kong, Macau, China, and the U.K.
Jardine Lloyd Thompson is a London-listed insurance broker and employee benefits adviser.
Jardine Matheson is trading at just 84% of book value and nine times forward earnings, and is flush with $1 billion in cash. A 2.6% dividend yield offers a cushion and downside protection, and some reasonable “A” share buyback is a distinct possibility.
Finally, data drawn from Jardine Matheson’s website shows its shares trading at a 29% discount to net asset value. This is the clincher for me.
Buying quality value in growth markets that are out of favor – coupled with a disciplined sell strategy – is the key to building wealth.