I concluded the last installment referencing the near term prospects for growth rates in Southeast Asia as they relate to sustaining Multinational growth rates for US based companies from this sector. I hinted that growth rates in Southeast Asia would be slowing near term, and that may hold back the revenue streams from this region of major US Multinationals. Let's talk a little more about that.

I sat down with a major Venture Capital Firm based in Kuala Lumpur and had exclusive access to their director. They preferred to remain anonymous, but their focus was quite clear. The points they made were revealing, and the conclusions help us moderate our expectations from this region going forward.

When I left California for this tour one of the last things I heard on CNBC was the Mad Money Show. Jim Cramer was talking about Private Equity stocks, and he made some criticisms of their performance, while entertaining his audience by mocking the shamanistic nature of their investment decisions. His point was clear, these stocks do not look attractive at this time. I'd agree, for the most part. However, the excellent timing of these IPOs suggests that Private Equity knew exactly when to sell to the general public; they sold at the top. Private Equity has always been at the head of the pack, ahead of the curve, and nothing has changed.

Now, because margins aren't nearly as attractive, Private Equity deals seem far less robust to us at home; this changed abruptly a few month ago, and domestic perception suggests that Private Equity deals are dead. But Private Equity is very active, they just changed their venue as the financial landscape changed in the United States. Private Equity is extremely active in Southeast Asia. Instead of buying whole companies though, they are taking major equity stakes, and stepping back. The biggest name I have heard across the table was the Carlyle Group, though many other very well known smaller companies are prevalent.

This tells me that longer term investments may still be very attractive in this region.

But what about the near-term prospects? The venture capital firm I spoke with recently expressed concern that China would continue to act as a sieve for raw materials and commodities. "They are buying everything," said the director. "Inflation is everywhere. In fact the locals are stealing manhole covers, melting them down, and selling them to China for a premium price." Steel is an attractive bartering tool, according to this executive.

The Chinese government recognizes the inflation problem that exists due to the demand issues related with the growth rates in China. That's why the government halted lending practices for the remainder of the year. They want to slow the growth rate of the country. The culture in this region is far more extreme than we're used to. Instead of moderating lending practices, they just cut them altogether. That's extreme, but that's the way things work around here.

Singapore, which is one of the most attractive places for new business in this region, has already showed substantially slower growth than what economists had been expecting.

The proof that we already have from Singapore coupled with the slower growth rates that are now expected from China should impact this region significantly in the near term. This makes the prospect for equity-based investments unattractive at the moment. This also means that the growth rates that US-based multinationals have enjoyed from this region are likely to slow as well.

But that doesn't change the longer-term prospects for this region. Private equity is very active here, and private equity investments are longer-term investments. This tells us that at some point equity-based investments in Southeast Asia, whether they be mutual funds or individual stocks, should fare well again. This may not be the right time to do this, but eventually an investment in this sector will look attractive again.

I expect investment opportunities in Southeast Asia to surface far sooner than in the United States.

The next question is what do we buy? Infrastructure, sewage, waste management, pollution control, these all seem logical right? Not so fast! We'll talk more about this in the next installment.

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Thomas Kee

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