Returning from my latest trip to Asia, I'm both exhilarated and perplexed.
Exhilarated because Asia is booming, and it's a joy to see. Thailand, my main stop this time, is growing at 7 percent a year -- twice as fast as the United States and about four times as fast as Europe. Inflation and interest rates are low, and the economy is well balanced between strong manufacturing exports and growing consumer demand. Entrepreneurship is rampant, and the people are smart and work hard.
Perplexed because, I'm afraid, the gap is growing between the energetic economies of Asia -- notably China, India and the Tigers of Taiwan, Singapore, South Korea, Indonesia, Malaysia and Thailand -- and the mature, complacent economies of the West, and I am not exactly sure what that means for investors.
At least one very intelligent and successful investor, however, is not confused at all. Byron R. Wien, the Morgan Stanley strategist, calls this person "The Smartest Man in Europe." Wien won't identify the man but wrote about him with respect and enthusiasm in a June 28 letter to clients.
The conclusion of The Smartest Man in Europe (let's called him TSMIE) is this: "You should put your financial assets in Asia (50 percent), Europe (25 percent) and the U.S. (25 percent) and buy some gold and other commodities."
Let that sink in. TSMIE thinks half of your stock holdings should be in firms based in Asia. Even an aggressive U.S. or European investor typically has no more than one-tenth of his portfolio in Asian shares.
My own view, repeated countless times, is that investors should assume that the world economy will grow pretty much as it has since World War II. Sure, some smaller nations will grow faster, but that's no big reason to favor them. A smart portfolio, I have always said, focuses on U.S. companies. A little seasoning with international firms makes sense, but the flavor should not be overwhelming, or even very noticeable.
TSMIE disagrees strongly. First, he points out that while corporate "earnings are exceeding estimates by a large amount and substantial money is flowing into equity mutual funds . . . stocks refuse to budge." That seems strange, says TSMIE, because, according to the conventional wisdom on Wall Street and in Washington, the economy is doing well.
Yes, it slowed after the attacks of 9/11, but "the Fed eased significantly, the government applied massive fiscal stimulus, business picked up, [and] inflation remained tame and interest rates stayed low." Rates are rising a bit, but they are still very low. Growth is increasing, but "the stock market is going nowhere."