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Fully Oriented

The expansion of investment BY opportunities beyond the DAVID domestic front requires constant observation of what’s going on around the …

The expansion of investment BY opportunities beyond the DAVID domestic front requires constant observation of what’s going on around the globe. And, at the moment, a careful analysis of the global marketplace offers some surprising results.

For example, while Japan has been having serious problems, China looms as an attractive emerging growth market in the Pacific Rim, thanks to the way it has corralled inflation, kept growth to between 9 and 11 percent, and successfully addressed some thorny economic challenges, according to John R.H. Bond, group chief executive of HSBC Holdings plc, a $368 billion-asset financial institution.

And Bond should know, having worked in Asia for 25 years for Hongkong Bank, including a post as chief executive of HSBC’s Asian investment banking arm. Now based in London, Bond notes significant differences in trends between East and West: Eastern countries draw enormous strength from having economies in various phases of development but all in the same region. “You’ve got capital exporting countries like Japan, Taiwan, Hong Kong, and Singapore; capital importing countries like Thailand, China, and Indonesia; consumer markets like Japan, Taiwan, and Singapore; low-wage economies like Vietnam and Bangladesh, and countries with natural resources like Indonesia and Thailand,” he says. By contrast, in the West, “economies are much more symmetrical and industrially mature so if one of their engines slows down—say Germany—then the rest of the economies slow down, too.”

Eastern economies, he adds, “feed off one another” to keep fuel flowing to their economic engines. Asia leads the West in trade growth by a 2-to-1 margin, contributing to economic growth in that area.

The barometer of economic growth—stable inflation and low interest rates—remains favorable throughout much of the world, which opens the door to investment opportunities in multinational companies that are leaders in their fields. Strong multinational companies that have the attractive fundamentals of seasoned management, global position, and solid balance sheets, stand above competitors by providing low-cost products and services to their customers, and more easily weather market-share battles or commodity-type competition.

One of the most efficient methods for an investor to enter that arena involves finding a field of multinationals that stand to perform best under the global economic conditions experts expect. Financial institutions come readily to mind. Low interest rates and low inflation encourage corporate borrowing, which translates into consistent and profitable returns for lenders. Likewise, consumers have more confidence in the economy in periods of low interest rates and steady inflation, and that further enlarges the market of borrowers.

Creating a mini-portfolio of multinational companies focused in the financial area minimizes risk while enhancing the participation in the overall growth of the industry. Given the global economic outlook, particularly in the Far East, five years seems the appropriate period to hold a portfolio based on multinational financial institutions. That allows the investor to withstand the downward turns in the markets while reaping the benefits of a long-term commitment.

Recently, Citibank and Hongkong Bank among others became licensed to handle business in Chinese yuan, the local currency. Beijing has been under pressure from the U.S. and other countries to open its financial services industry to foreign competition in return for entry into the World Trade Organization. Until now, the Chinese banking sector has been run by poorly-managed state-owned institutions. With more sophisticated technology and better management, the foreign institutions will garner an increasing market share of a burgeoning financial services business in China.

Plans to increase exposure in the Chinese markets were essentially a vote of confidence for the continued economic stability of the region. By providing local currency transactions loans, credit, savings, and financing these institutions are able to participate in the growth and expansion of one of the world’s most dynamic economies.

Now, which companies to invest in? Bond’s HSBC Holdings stands out, along with Bangkok Bank plc in Thailand, National Westminster Bank, A.G. in the U.K., Citicorp in the U.S., Deutsche Bank, A.G. in Germany and ANZ Bank Group in Australia. All appear poised to reap the profits of an economy that benefits financial institutions. For those looking to expand their investments overseas, they’re a good bet.

David Elias is president and chief investment officer of Elias Asset Management, a I Williamsville, NY-based investment firm.

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