The editor of The Silk Road Investor explains, "This combination will allow prudent bargain-hunters to position themselves for the next cycle." Here, he looks at two Asian favorites: Infosys Technologies (NSDQ: INFY) and Taiwan Semiconductor (NYSE: TSM).
"Asian markets will lead the next leg up, as structural improvements fuel recovery. My long-term bullishness on Asia is summed up in two simple words: economic change.
"Global economic leadership changes over time, and the world has now entered such a period. In coming years, Asia will emerge as the global economic growth leader, and the West will enter a more subdued cycle.
"Time will test everybody’s theories, but history has shown that in the aftermath of calamitous economic/market bottoms the world and its societies have profoundly changed.
"I expect this to be the case this time around, too. I don’t subscribe to the theory that after all is said and done, things will go back to the status quo.
"Things never do, and won’t this time. Now is the time to introduce some cyclicality to your portfolio, as those are the stocks that have been sold off the most during this downturn.
"Infosys Technologies is the second-largest IT services company in India, with more than 100,000 professionals. It’s also among the fastest-growing IT services organization in the world, and is a leader in the offshore services space.
"Infosys provides business consulting, application development and maintenance and engineering services to around 600 banking, financial services, insurance, retail, manufacturing and utility companies in the Americas, Europe and Asia Pacific.
"Indian technology stock valuations peaked in the first quarter of 2006. At that time, they were trading at huge premiums to the rest of the region. Current market conditions have brought these stocks down in a hurry, and as a result they’re now trading almost in line with the rest of the sector.
"Infosys will be affected by the recession and the negative economic environment in 2009. A lot of the bad news, though, should be priced in at this time.
"That said, given Infosys’s big exposure to the finance sector, we should expect shorter-term headwinds. But the company is well equipped to weather bad conditions because of its strong balance sheet and a proactive management team.
"Taiwan Semiconductor Manufacturing Company is my favorite way to gain exposure to a potential tech turnaround. Industry data indicates that demand for notebooks remains solid even in the current environment.
"And in consumer electronics, there are shortages of LCD TV panels being reported, with panel makers and set makers trying to rebuild inventories.
"Taiwan Semi will be a clear beneficiary from any improvement in market conditions, which seems to be closer now than any time during the past two years. The company is a clear leader in its field with superior technology.
"Furthermore, the company has a strong balance sheet, with USD5.6 billion in cash, which allows for greater flexibility to invest in improving its technology, especially relative to its competitors.
"Valuation-wise, the stock trades below its 1998 and 2001 price-to-book levels, both periods of great uncertainty and wealth destruction."
The Stock Advisors