Top Down Analysis: Possible Sectors to Investigate with Potential Long Term Upside

 Hey guys,

Please feel free to contribute to this section on which industries/geographies we should investigate.


Here are my takes for the next 5-20 years:


Equities

• Asian environmental services, in particular water (Hyflux etc) - due to water scarcity in China, India, Middle East -> rising affluence means increasing levels of consumption per capita but they do not have a good sanitation system - too much dirty water around to meet the increasing demand
  

• Asian healthcare - witness the Parkway health saga - more people aging in Asia , more affluence = more travelling, medical tourism - explore Singapore and Malaysia as a travel hub for such activities of hospital treatment + entertainment (Integrated Resorts)
• China financials - the UBS Chief investment strategist in Singapore recommended buys in all 3 Chinese banks - ICBC, BoC and CCB. ABC is a not so good due to high level of non performing loans, and relatively bad performance. If you check their ROE on one source, all above 12% from 2005-2009 (indicating Buffett's durable competitive advantage?), on the face of it. of course, haven't adjusted for all the analytical adjustments in corp.
• China real estate: UBS talk shows 15 million people moving into urban areas every year. property prices are going sky high, fears of bubble. But the fundamentals mean demand is more than supply over the next few years due to increasing urbanization from rural areas to Tier 1, Tier 2 and Tier 3 cities. Future growth areas : Tier 2 and 3 cities - i.e. the ones that are situated further from the eastern coast of China (Tier 1 being Shanghai, Beijing etc). China is rapidly building infrastructure to connect these inland cities to the coastal areas, and MNCs like HP are building more factories inland to take advantage of cheaper labor.  Some companies to investigate: China Vanke (China's Capitaland) , Singapore's CapitalandMallsTrust (investing alot in China). He also said that state owned enterprises in China doing real estate tended to outbid other companies for land (they bid a premium over the private companies) so they secure the most lucrative land to develop property - a risk to take into account.

• China retail: In particular, Li Ning - consistent ROE of about 30% from 2005-2009. Potential to be (or already is) China's Nike.It consistently beat foreign sports brands in the China market like Adidas and Nike.
• Singapore real estate - looking into REITs that have exposure in Singapore (due to increasing tourism arrivals due to IR), Indonesia (recently positive reports on its growth) and China (increased consumption in the world's biggest market)

Risk Management
Maybe buy some ETFs to ride the wave and minimize risks.

• Investigate S&P500, DJIA, Emerging Markets, FTSE/Xinhua China 25, MSCI Emerging Markets, MSCI Indonesia, STI?  

Emerging Markets

I recently attended a CFA conference on Asset Allocations in Emerging Markets. One of the keynote speakers, Lawrence Speidell, CFA, said investing in developed markets are riskier than investing in emerging markets. Emerging markets you get higher returns, but look at Eurozone and US now, all in trouble! Putting money in Eurozone/US may lead to stagnation. Also, emerging markets people are more optimistic about tomorrow than the developed countries, and demographically, there are proportionately more young people in emerging markets to be consumers and represent a pent up, latent demand for goods and services compared to developed countries, who face an ageing population who are less productive. The emerging markets' young population is highly ambitious, innovative and enterprising and always striving to build a better future for themselves, whereas developed markets are too saturated and overpriced for more growth.

What Methodology to Use?

This is the scope so far in my mind. To identify companies worth examining further, perhaps we could filter them out objectively through quantitative criteria by using the New Buffetology's Ten Points of Light: i.e. ROE >12%, ROA >12% , debt < 5x net earnings, etc.

And also in industries where the companies are market leaders and can enjoy a competitive durable advantage from a strong brand name and almost monopoly position. Because analyzing individual companies are time consuming, we want to ensure the right horses are chosen!