Other Ways to Profit From China's Growth

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Unless you've spent the last few years under a rock, you probably know that China's been a hot place to invest. This summer's upcoming Beijing Olympics have brought a spate of publicity (positive and negative) to the country, and in recent months, both The Economist and National Geographic have devoted full issues focusing on China. More enticingly, the country's yielded outstanding returns for savvy investors.

China's Hang Seng index gained 130% in 2006, and another 97% last year. Oil, steel, infrastructure, and commodity companies have been great ways to invest in China's torrid growth, with minimal difficulty. Many of them are large U.S. companies or big foreign firms that list American Depositary Receipts (ADRs) on U.S. exchanges.

Big ambitions
With an emerging middle class among its 1.3 billion citizens, China's growth is not fleeting. (It's also not bulletproof, of course; the Hang Seng is off 43% from its October 2007 high.) While that macro trend opens up many investment possibilities within China itself, there's another increasingly appealing way to invest in that growth: China's neighbors.

China's neighbors in Southeast Asia have emerged as opportunities themselves. Singapore, Vietnam, and Indonesia are a few of the countries that have big plans to help feed China's growth -- and grow their own economies in the process.

Singapore's well-developed economy and predominantly Chinese population have the country already well-positioned to benefit from growth in the region. And whether you label them as "emerging" or "frontier" markets, Indonesia and Vietnam are fast-developing economies, and the potential of opportunities in infrastructure and industry are greater there -- as are the risks.

The growth opportunities are huge. Vietnam currently doesn't produce enough steel to meet its own building needs, but by 2010, it plans to exceed that growing demand for steel as a net exporter. China is already Vietnam's largest trade partner for coal, and it's a potential customer for steel, too. Indonesia has been reforming its economy to increase investment outside of the oil and gas industry. The benefits have been tangible -- in 2007, the Indonesian economy grew at its fastest rate in 11 years. It probably won't surprise you to learn that China and Singapore are among Indonesia's main export partners.

One of the big talking points about investing in China is its huge population -- 1.3 billion strong. Vietnam and Indonesia don't have China's sheer size, but Indonesia's population is around 100 million more than Japan's. Vietnam's population is just about the size of Germany's -- and it's larger than South Korea's.

How you can get in
The number of companies in the region trading as ADRs on the major U.S. exchanges is limited. Really limited. According to The Bank of New York Mellon ADR website, there are exactly three from which to choose. The best-known of them is Global Gains recommendation Telkom Indonesia (NYSE: TLK). Including companies with shares trading over the counter adds another 26 names to the list, for a grand total of 29. A closed-end fund such as the Indonesia Fund (AMEX: IF) is another option worth investigating.

Perhaps the easiest way to invest in the region's growth is through foreign companies already on the ground. For example, South Korea-based POSCO (NYSE: PKX) has looked to Vietnam as a growth driver, making substantial investments to develop steel mills there. Canon (NYSE: CAJ) is making printers in Vietnam, and sees its base in the country as a billion-dollar export opportunity. U.S. companies have a presence as well, including Jones Lang LaSalle (NYSE: JLL) in real estate services and Nike (NYSE: NKE) and Procter & Gamble (NYSE: PG) in consumer goods. These are some of the ways to benefit from growth in the region, and obviously, each option has a different level of risk.

Get a viewpoint from on the ground
While Vietnam and Indonesia have the opportunity to post the highest growth rates, don't overlook Singapore because of its smaller population or physical size. Singapore's economy is trade-focused and quite advanced, and the country's mix of Chinese, Malay, and Indian cultures makes it a natural fit to continue benefitting from growth in the region.

There's no better way to figure out what's going on in these countries than to see them with your own eyes. That's why advisor Bill Mann and our Global Gains team are in Asia right now -- to observe the opportunities in Vietnam, Indonesia, and Singapore for themselves. If you'd like to follow along as we visit companies there, as well as in Macau and China, sign up to receive our dispatches live from the field.

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