Following on the heels of renewed concern over Europe’s debt situation, China released its monthly economic data. Fixed asset investment, industrial production and retail sales all rose in April, yet growth was not as strong as analysts anticipated. “Weak” is the word to describe China’s April figures, says CLSA’s Andy Rothman in his Sinology Report.

While data were lower than expected, they weren’t disastrous, says Andy. According to CEBM Group, slower growth was the government’s intention. China wants the ability to manage a “stable decline” to “promote medium-to-long-term structural reforms” as well as avoid a hard landing, says CEBM.

Because they weren’t devastating results for the country, more fine-tuning, rather than a major stimulus plan, is likely to come from this emerging market if growth continues to stall. “The government should move forward to introduce accommodative policies stabilizing economic growth,” says CEBM.

Easing policy for China is only a matter of willingness. Unlike the developed countries of the West that have overworked their printing presses and are now strapped with a tremendous burden of debt, China is in good shape. According to BCA Research, the country’s overall gross debt is only 42 percent of GDP, significantly lower than all of the G-7 countries which have the most debt of the countries listed below. Of the E-7 countries, only Indonesia and Russia have less government debt compared to GDP.

To offset the country’s liabilities, BCA says China also has “a massive net asset position,” including owning interests in publicly listed firms, large companies and the country’s land mass. According to BCA, if you look at only state-owned enterprises, the net assets are nearly “as large as the total public (local and central combined) debt.” By these stats alone, it appears the emerging country does not have a solvency issue.

However, rather than serious stimulus, CLSA anticipates that China will make a move to ensure its two primary goals are met, which include new loan growth as well as M2-money supply growth of about 14 percent.  Andy says, to accomplish these goals, the government will likely boost its spending on infrastructure and low-income housing, ease restrictions on new home purchases by first-time buyers, and offer more credit to the private sector.

Hear Andy Rothman discuss a hard or soft landing China now

We believe government policy is a precursor to change, and when China feels the need to fire up its fiscal or monetary firepower, we believe the flow of money will send Chinese stocks—along with commodities—higher.

CEBM notes an interesting correlation between the A-Share market and economic growth, which points to a possible improvement. The research firm compares today’s economy with what we saw in late 2008. While the data is not as ominous and the government has grown comfortable with slower growth today, there is still a resemblance to the situation in 2008, where the market rebound led improved economic growth by four months. CEBM believes it may be seeing the same signs of bottoming of the market today, and if the 2008 trend holds, economic growth should now be in the bottoming process.

Fine-Tuning Your Portfolio to Potentially Benefit
As economic data is released over the next few months, China will be keeping a close eye to determine when to open the spigots. Before this happens, we believe investors should position their portfolios to potentially benefit. Here are two ways:

1. Invest in emerging markets companies and commodity equities. Emerging markets continue to offer the most potential for growth, and as you see below, over the past five years, as the Shanghai Composite Index rose, the S&P Global Natural Resources Index soon followed.

2. Get “paid to wait” with dividends. This week, investors fled any asset that was perceived as risky, including stocks of any country and commodities, including gold, in favor of “safe” government Treasuries. The 10-year note on U.S. Treasuries fell to 1.85 percent, which is lower than the dividend yield on numerous stocks. Currently, the annualized dividend rates on the S&P Global Natural Resources, MSCI Emerging Markets and the S&P 500 indices are nearly 2.9 percent, 2.8 percent, and 2.1 percent, respectively, all higher than a 10-year investment. Along with steady income provided by dividends, these stocks offer potential appreciation on your capital.

This week, I’ll be presenting at the Hard Assets Conference in New York, sharing more investing insights about China, commodities and how to apply Super S-Curves in a portfolio. I’ll be in good company, as Pam Aden, Adrian Day, Ian McAvity, Jay Taylor and Gregory Weldon will be presenting as well. I hope to share some of their thoughts as well as my takeaways in the coming days.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The Shanghai Composite Index is an index of all stocks that trade on the Shanghai Stock Exchange. The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified, liquid and investable equity exposure across 3 primary commodity-related sectors: Agribusiness, Energy, and Metals & Mining. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.

Many have compared today’s economic recovery to the slow, stagnant growth Americans lived through in the 1970s. I argue there’s at least one significant difference: Four decades ago, the world couldn’t depend on emerging market growth like it can today.

Take a look at Macquarie Research’s chart comparing industrial production (IP) following the 1970s with the output after the downturn in late 2008. The output during the mid-1970s and today’s cycle looks very similar over the first two years. The decline experienced around the 31-month mark today also mirrors the drop of the 1970s.

However, in 2011, advanced economies fell quicker and steeper than the IP in the 1970s. For the developed markets, the U.S. and Japan have had to bear the extra weight to make up for the lack of the European Union’s output. After the earthquake in 2011, Japan’s IP fell to a low of 90 but quickly recovered. In the chart, you can see that the combined current cycle of advanced economies has remained pretty stagnant following its trough.

Emerging markets came to the global rescue, with “Asia powering global growth,” says Macquarie. Over the past year, the world IP has crept higher than the output during the 1970s. “The emerging world continues to gain share of industrial activity, and continues to grow at rapid rates to keep global growth rates close to a healthy 4 percent year over year rate,” says Macquarie.

Back in the 1970s, emerging markets such as China and Russia had no global footprint and were isolationists. China was just beginning to build its modern economy. The world population back then was 4 billion; today it’s 7 billion. As millions of people in emerging countries are expected to move to urban communities in the coming decade, their governments have been pursuing policies that emulate America and promote growth.

Also read: China—The Great Stabilizer

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

It’s no surprise the NBC show, “Outsourced” was set in India—in 2011, revenues for the country’s outsourcing and information technology industries reached $100 billion, according to The New York Times. However, if the now-cancelled show gets remade in the future, it may take place in the up-and-coming location of the Philippines.

Historically about 10 percent of the country’s GDP growth has been from workers living overseas, sending money back to their families living in the country, i.e. overseas remittances. In the U.S. alone, the Filipino population grew by nearly 40 percent over the past decade, according to the 2010 census. More than 2.5 million Filipinos live in the U.S., with the largest concentration in California.

Getting workers to stay on their native soil has been the challenge for a country with the 15th largest labor force in the world. Among a population of 104 million, nearly 40 million are in the workforce.

The Philippines has been meeting this challenge in recent days with the rapidly expanding business process outsourcing sector (BPO). The same services that made India’s outsourcing industry successful—call centers, IT outsourcing and engineering services—have been booming in the Philippines in recent years. Right now, about 638,000 people work in the BPO industry, and this should continue to grow, based on projected revenues, according to data from CLSA.

Whereas revenues coming from overseas remittances are much higher than the revenues generated from BPO today, BPO revenues are growing three times faster, according to CLSA. Each is projected to provide $25 billion in revenue by 2016.

CLSA finds that the Philippines is “increasingly being established as the favored service center, along with India” for outsourcing. Multinational companies are choosing to be in both locations. Three hundred multinational companies are currently involved in the outsourcing business in the Philippines, says CLSA.

Attracting these multinational companies will become easier for the outsourcing companies, as the cost of capital has recently been significantly reduced. In the past, the Philippines had “one of Asia’s highest cost of capital.”  In late 2011, the real lending rate was 1.5 percent compared with the 10-year average of 4.2 percent. According to CLSA, bank lending increased 19 percent year-over-year in July 2011, “the fastest growth since March 2009.”

The booming outsourcing industry is only one area that is driving solid GDP growth in the country. While 2011 saw tepid GDP growth of 3.7 percent, CLSA says investors should expect a higher rate out of the Southeast Asian country in 2012.

In a recent report, the research firm increased its GDP growth forecast to 4.7 percent, up from its previous forecast of 4.2 percent. Its rising optimism is based on the fact that “large domestic development and construction firms have high expectations for a faster roll out” of numerous private public partnership projects in 2012. These projects, totaling $4.1 billion, include an airport terminal, expressways, water supply source project and other health and education projects.

The limited progress made last year was due to only a partial disbursement of the budgeted public capital expenditure, says CLSA. Only two-thirds was distributed because the government was concerned about transparency and cost-effectiveness of the spending.

Looking at what the impact of government spending would be on GDP growth, the chart below shows the disbursement rate of budgeted expenditure compared with the real GDP growth. According to the World Bank, if 80 percent of the planned expenditure is disbursed, GDP growth should rise to 3.6 percent. If 100 percent is disbursed, GDP growth could be as high as 6 percent.

There’s extra incentive for the leaders to go through with these projects in 2012. In a recent poll, residents continue to approve of President Benigno “Noynoy” Aquino, but protest groups have labeled a catchphrase for the president: “noynoying.” Protestors have been photographed in “noynoying” positions, i.e., lying around and staring into space, claiming Aquino isn’t productive as a leader, says The Wall Street Journal.

That’s powerful incentive for this year to be a “make or break” year for President Aquino. According to CLSA, his “popularity will be gradually eroded if he is slow to deliver.” He wants to be seen as a president who gets things done. Also, in 2013, the 230-member House of Representatives will be up for election.

The Philippines’ GDP growth also stands to benefit from the expansionary global monetary policy that I’ve mentioned frequently. CLSA says that “countries such as the Philippines with historically high cost of capital have benefited most” from the easing of monetary policy by reducing the risk spread across emerging markets.

Our investment team has reported in the weekly Investor Alert about a number of positive trends coming out of the Philippines lately, including a narrowing of the budget deficit, easing inflation and rising export numbers. In addition, CLSA reported last fall that, “the Philippines increasingly looks like it could be where Indonesia was five years ago in terms of the potential for a multi-year credit and investment cycle to kick in after years of post-Asian Crisis de-leveraging.”

The country was the best performer last year among the emerging markets that we track and one of the few that ended the year in positive territory, increasing nearly 8 percent in 2012. For the China Region Fund (USCOX), we believe there continues to be room for growth. The country remains a potential source of opportunity to add outperformance against the benchmark.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.