Widespread Selling A Stock Picking Opportunity

For all the lipservice paid to decoupling, stock traders in Asia certainly don't seem to be willing to put their money behind the concept.

Stock markets in Asia fell across the board Wednesday, in a selloff sparked by worry that a housing slump and credit crisis in the U.S. will pull that economy into a slowdown, or even recession. Few stocks in Asia held up well to the pressure - not even those that are likely to avoid being dragged into the mess. "The steady stream of bad news has already prompted investors to stop giving the benefit of the doubt," analysts at Standard Chartered wrote to clients on Wednesday. Still, indiscriminate selling creates buying opportunities and that means stock pickers are likely busy these days scrubbing their markets to find companies that are least likely to be impacted by a slowdown in the U.S. There are two groups worth exploring: those housed in economies that aren't exposed to the U.S., and the infrastructure giants whose work comes with long-term contracts that aren't exposed to the factors that will weigh on the U.S. economy. The big picture is a starting point. ABN Amro recently ranked Asian countries by their exposure to a U.S. slowdown, categorizing Thailand and Taiwan as having the highest risk - thanks to their dependence on exports for gross domestic product growth - and India and Indonesia as having "relatively low vulnerability." Indeed, "Indonesia's reliance on exports to the U.S. is one of the lowest in Asia, with economic growth mainly driven by domestic factors," Citi Investment Research analyst Stephan Hasjim recently wrote in a note. Hasjim covers Indonesian banks, and thinks that they remain attractive targets because investment and higher fiscal spending in Indonesia, loan growth and relatively low interest rates will all offset the impact of a U.S. economic slowdown. For example, the Indonesian government said earlier this month it plans to increase its capital spending by nearly $11 billion, a nearly 50% increase, to pay for infrastructure projects - everything from highways to electricity and irrigation infrastructure. Narrowing in on banks that are most likely to grow earnings as they do their loan portfolios, and are also sheltered from falling yields on bonds and assets, two stand out: Bank Rakyat Indonesia (BBRI.JK) and Bank Danamon Indonesia (BDMN.JK). Bank Rakyat fell 3.3% to IDR5,900 on Wednesday, and has lost 6% so far in August. Bank Danamon dropped 4.5% to IDR7,350 on Wednesday and is down about 10% so far in August. But for those unwilling to count on the fact that companies in Indonesia or any other relatively insulated economy will survive all the spillovers sure to come their way, a second transnational group of stocks might offer a compelling opportunity. These are the giants that build the national infrastructure like airports, power plants and roads that countries like Indonesia are pouring billions of dollars worth of investments into. "Infrastructure is a mega-trend," said Roger Groebli, head of Asian equity research at ABN Amro Private Banking, and there are companies cashing in on it. Groebli points to companies that have a finger in many pies. Japan's Marubeni Corp. (8002.TO) is one, for example, that is developing power plants and other infrastructure around the world from power plants in Indonesia to water desalination in the United Arab Emirates. Marubeni fell 1.3% to Y899 Wednesday, and has lost 22% so far this month. Another is Toshiba Corp. (6502.TO), which is driving an increasing percentage of its revenue from stable and long-term infrastructure projects like building nuclear power plants, rather than its fairly commoditized memory chip business. Toshiba was off 3.4% Wednesday to Y1,010, and has lost about 10% so far this month.