Why Picking Stocks in Asia is Different
It will come as no surprise to most people when I say that the higher the taxes, the more the government will spend, whether it's on welfare or warfare.
As a result, the government will grow… and grow.
And like biomass, a growing government requires increasing resources to sustain itself.
However, when it begins to expand for the sake of its own ‘companies’, a.k.a state-owned enterprises (SOEs), as well as the benefit of its own ‘employees’ (public servants)...
It can start to behave like a massive ‘red supergiant’ star—burning more and more fuel until it reaches critical ‘supernova’ mass and collapses in on itself.
The ensuing, economic ‘black hole’ is a National Default.
However, politicians and central bankers in Asia have found some pretty ingenious ways of bending the rules of physics and economics in order to continue feeding this black hole, aka extending the government’s reach into the economy.
This tends to happen for the benefit of the government and its 'companies', and to the detriment of the private 'universe'—SMEs, the budget deficit, and the private sector as a whole.
Governments justify that more taxes are needed to fulfill certain services. In Asia, however, taxation occurs primarily to fund the state’s position in the economy, leading to unfair advantages.
So more taxes => more government => distorted competition
Surprisingly, this is not all bad news.
When we examine political economies across East Asia, we see that their development have been driven by an economic 'model' we call Asian Capital Development.
The model suggests that the state plays a large, if not pivotal role in guiding how economies in these countries develop.
By directing economies from 'above', the state 'funnels' cash to the companies and industries of its choice.
The destination of cheap credit and subsidies are selected through a process of:
a) rational economic thinking
b) corruption, nepotism and interference of vested interests.
As an Asia-focused investment research firm based in Singapore, what we look for are the ‘type A’ cases:
Companies and sectors that are well-managed, independently profitable, and also benefiting from the helping hand of a large Asian government.
Our Asia 360° premium research membership delivers insights into the companies ticking all these boxes, delivered to our members with fresh analysis every month.
Chasing 'dragons’—big Asian conglomerates—can become very gratifying once it leads you to the 'hidden gold', and you make away with it without getting 'burnt'.
Our team of researchers on the ground understand that a major key to winning in Asia is uncovering companies whose successes are effectively 'guaranteed' by the state.
More on our approach later. In the meantime, take a look at some of the companies we've discovered using the Asian Capital Development model.