Indonesia’s Telecom Giants

South Americans, Europeans, Asians, and Africans didn’t buy more houses than they could afford. Their banks didn’t lend gobs of cash to people who couldn’t make the monthly payments. We’re dealing with an American problem. And although the extent of the problem is debatable, there are still plenty of other countries that will just keep growing.

I still like South America. Compared to Americans and Western Europeans, South Americans have low incomes, are less educated, and their countries are generally less developed, but South America is bursting with potential and has abundant room for growth.

Right now, I like Bombril (OTC: BMBPY.PK), a small-cap Brazilian cleaning-supply company. The company is the largest manufacturer of steel wool in the world and also makes other household cleaning products that are distributed to about a half million retail locations in Brazil. In the consumer sector, population growth drives demand. Brazil’s population is growing by about 1.5% per year, which will push it over the 200 million mark in the next decade. In the commercial sector, it’s economic growth. Brazil’s GDP grew over 5% last year, and on March 7, 2008, at the Institute of International Finance Spring Meeting in Rio de Janeiro, Finance Minister Guido Mantega said that the government expects similar growth for 2008. “The subprime crisis has not reached Copacabana Beach yet,” he said.

If you’re riding the worrywart wagon, you may be thinking, “Wait! Brazil, like many South American countries, exports vast quantities of goods to the United States. Twenty percent of Brazil’s exports come here, and consumer spending in the U.S. is sliding. The subprime crisis could well hit Copacabana Beach before it’s over.” I’m not above indulging such alarmist sentiments.

Let’s move even further still—to our old friend, Russia. Russia sends a mere 1.5% of its exports to the U.S., and there are as many ADRs in Russia as the whole of Latin America. Russia’s GDP grew by 8% in 2007, and the consensus is that it is not going to disappoint in 2008. Though they’re larger players, wireless Vimpel-Communications (NYSE: VIP) and steel-mining giant Mechel OAO (NYSE: MTL) are still attractive despite being up over 100% and 300% since the start of 2007, respectively. Wall Street will likely continue to see Russia as a good investment for the foreseeable future despite almost anything Vladimir Putin and his hand-picked predecessor may try to pull. The returns simply speak for themselves, and the government has pledged to focus on what it calls the four “I’s” for the next several years: institutes, infrastructure, innovations and investments. Not an entirely disagreeable prospect, it calms some of the fear that Putin might be ushering in a new era of the old Cold War.

Yet Russia’s not for everyone. Its bureaucracy can be stifling, and there’s enough corruption to concern even the bravest investor. If you’re willing to sacrifice growth potential for stability, another country fairly insolated by its low level of exports to the U.S. is Hungary. Though growth in the former Eastern Bloc country hasn’t been spectacular, the prospects for its largest telecommunication provider, Magyar Telekom (NYSE: MTA), remain interesting. Magyar Telekom provides both fixed-line and mobile services. Its fixed-line segment is the chief telecom service provider in Hungary, Macedonia and Montenegro. The company also has a presence, through subsidiaries, in Romania, Bulgaria and Ukraine. Despite its fourth-quarter 2007 drop in profits, MTA’s phone business continues to generate solid cash flow, which supports its healthy dividend payments, as well as its plans for future growth in the region.

If you take the defeatist route and stuff your money in your mattress, you’ll be missing out on a wealth of international opportunity.

— By Anthony W. Haddad