Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

SINGAPORE — Any doubts I had about how the recent U.S. economic malaise was affecting the Asian region were promptly dispelled when I rolled off my 23-hour flight into Singapore`s Changi Airport.

At 11:50 p.m., it was every bit as busy as Frankfurt or any other major international airport in the middle of the day.

As I looked around while I waited to clear customs — a process that took nearly two hours because of heightened security — I was struck [as I am on every trip to the Far East and Southeast Asia] by just what a melting pot this is: There’s a simmering brew of Malaysian, Chinese, Indian and Western cultures here, and even late at night the energy is palpable. Right away, one can sense the uniqueness that is Singapore.

That’s exactly why I got started so early today — jet lag be damned!

After a four-hour sleep that resembled a nap more than it did any kind of real rest, I headed out for a stroll around Singapore’s core and the historic Orchard Road area. My goal, as it usually is when I travel, was to observe the city’s transformation as it wakes up to face a new day. Not only does this help me get grounded whenever I arrive in a new city, but when it comes to investments, there are few better ways of gauging a city’s economic vibrancy.

As usual, I wasn’t disappointed.

Singapore is running full throttle. The country has become Asia’s boomtown. Not only is it situated right at the nexus of centuries-old trading routes; the government has done a very effective job promoting free trade. Indeed, Singapore has enacted a bevy of regulations that are designed to encourage banking and financial development, including tax incentives, currency exchange and infrastructure development.

From the moment I hit the streets, I was overwhelmed by construction activity. There were thousands of migrant workers from Malaysia flowing into the city. And the whining and metallic crashes from the ubiquitous construction equipment melded into a din that only added to the sensory overload I was experiencing.

The old is being replaced by the new here, and old Singapore is being re-made into a cosmopolitan city on par with any metropolis in Europe or in the United States.

While it was once lined with pepper plantations where evening strolls were interrupted by the occasional tiger mauling, Orchard Road is now a palace of capitalism. In fact, it’s one of the world’s most concentrated shopping areas and within a few hours, it was filled with people. There were young executives, fashionistas in impossibly tight jeans and, of course, people like me, just taking it all in.

And everywhere I looked there were hints of the great economic boom we’re all following. Take Citigroup Inc. (C), for instance. Even though it’s under tremendous pressure in the U.S. market, Citi is creating a spectacular presence here when it comes to personal wealth management. So are China’s banks. Both had lots of signage and customers at their Orchard Road locations.

Then there were the cars. There are lots of them for such a seemingly small city, and most were fuel-efficient models. Singapore has no resources and needs to import nearly everything it consumes, so there is an emphasis on conservation. Not surprisingly, public transportation is cheap and very well run. It better be, given that there are some $90,000 Hyundais here.

With all that’s going on, it’s no wonder that legendary investor Jim Rogers chose to move here.

Speaking of whom, Rogers is the reason I’ve flown all the way to this part of the world. He and I will be sitting down together to talk global investing — and I can’t wait to share what I learn with you in the weeks ahead.

News and Related Story Links:

• Web site: Singapore’s Changi Airport.
• Web site: Singapore’s Orchard Road Area.

By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

Following a spectacular run up last year, many investors are wondering what’s next in Asia.

We are, too.

The steady stream of news so far this year has only seemed to make things worse. And the current market volatility, which began with last summer’s U.S. credit crisis, seems set to derail U.S. economic growth. Throw higher oil prices, inflationary concerns and a dollar that’s turning out to be more like Rodney Dangerfield than Sean Connery into the mix, and you’ve got what seems to be a real mess.

Fortunately, though, if you take a look behind the headlines, Asian markets are holding up just fine and, although they are likely to continue to be volatile during 2008 [along with the rest of the world's markets], they’re full of promise for decades to come.

Much of that promise is obviously due to the region’s growth. But increasingly, it’s also a function of the combined strength of the area…as it relates to China.

A Repeat Performance with a Different Star

If this sounds familiar, it should. For the 50 years immediately following World War II, the region centered on Japan. And investors who went along for the ride went straight to the top on the back of a Nikkei exchange and regional trading alliances that knew no downside…until the late 1990s when the bottom dropped out.

As usual, those who were focused on the short-term got badly burned and have yet to recover, with the Nikkei still trading at merely a quarter of where it was at its peak. Alternatively, safety-focused investors who made intelligent choices did well.

Today, Asia faces a similar situation only this time with China at the helm. And many investors are sitting at a similar cross roads. Like Japan before it, China has experienced a whopping run-up, which makes it all the more tempting for people who missed that initial surge. But China is a riskier investment than ever before.

This combination makes us suspect that now is the time to get serious.

Balancing Risk and Returns

There’s no question the region will continue to grow for decades. Yet, in contrast to the record growth of the past few years, which was driven largely by speculative liquidity, the longer-term growth in the region will increasingly be China-centric.

To cash in, investors will have to do two things:

• Make smarter, "safety-first" choices that diversify – and don’t concentrate – risk.
• And limit investment choices to companies that are poised to capitalize on international exposure in the region.

Here’s why.

Large-cap companies, particularly those with global operations, can build business within the region – and with far less risk than those local companies engaged exclusively in a domestic-focused business. This helps ensure stability. Plus, many of these companies pay dividends, which are vitally important at the moment, because they help offset the elevated risks we take when we invest in the China region.

Further, by concentrating on the so-called "Global Titans" doing business in the region, we mitigate a "split-personality problem" that eventually will end up clobbering most investors who don’t adopt the safety-first philosophy we advocate.

I’ve been involved with Asia investments for more than two decades. And I’ve seen it time and again. The reality is that 99% of all investors seeking profits in the area don’t understand that there are differing investment views when it comes to local money and international money.

For instance, in Asia, managers tend to focus almost exclusively on top-line [revenue] growth, whereas Western managers and investors all tend to focus on bottom-line profitability. Obviously, those two objectives don’t always align. And that creates a potential mismatch that can wipe out unsuspecting investors who are out seeking a "quick buck" profit.

Profit Plays for a Potential Slowdown

Bigger-company shares – like those we prefer – will keep their edge longer, even if there is a China-induced slowdown during 2008. We think such a slowdown is unlikely. But given the high-valuations that remain after last year’s big run-up, it’s a possibility, nonetheless.

With regard to favorite choices that meet our regional criteria, some at the moment include Zurich-based ABB Ltd. (ABB), which provides electrical power infrastructure in the region. China Medical Technologies Inc. (CMED) and Huaneng Power International, Inc. (HNP) fit the "Global Titans" model, too, but in reverse. Both firms focus on China, but also have important international operations with great potential outside of Mainland China.

If a broader holding is more your speed, without a doubt the best in class in our opinion is the China Region Opportunity Fund (USCOX), a mutual fund run by San Antonio-based U.S. Global Investors Inc. (GROW). And U.S. Global, itself, is not a bad play on international growth. It manages some of the best emerging-market funds, and natural-resources funds, in the business. As global growth fuels global investments – and it will – U.S. global will see more money pour into its funds, boosting the management fees it collects, as well as its profits and stock price.

The bottom line on Asia in 2008 is that we expect global volatility to sweep through the region, even though it is awash with liquidity. We see China leading the pack for decades to come, just as Japan did a half century ago. Yet, in the longer-term, we don’t see a direct correlation between regional economic growth and equity valuations. And that suggests that a safety-first approach – with a focus on large-cap companies that are globally diversified – is the strategy to follow if you want to maximize your profits from Asia.

Money Morning‘s "Outlook 2008" series last covered Agricultural Commodities.  Next up: Biotechnology.